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EMU ELECTRONICS Emu Electronics is an electronics manufacturerlocated in Box Hill, Victoria. The companyâs managing director isShelly Chan, who inherited the company from her father. The companyoriginally repaired radios and other household appliances when itwas founded more than 50 years ago. Over the years, the company hasexpanded, and it is now a reputable manufacturer of variousspecialty electronic items. Robert McCanless, a recent graduate,has been hired by the company in the finance department. One of themajor revenue-producing items manufactured by Emu Electronics is asmart phone. Emu Electronics currently has one smart phone model onthe market and sales have been excellent. The smart phone is aunique item in that it comes in a variety of colours and ispre-programmed to play Jimmy Barnesâs music. However, as with anyelectronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models. EmuElectronics has spent £750â000 developing a prototype for a newsmart phone that has all the features of the existing one, but addsnew features, such as Wifi Tethering. The company has spent afurther £200â000 for a marketing study to determine the expectedsales figures for the new smart phone. Emu Electronicsâ productionmanager has produced estimates of the costs associated withmanufacture of the new smart phone. Variable costs are estimated at£205 per unit and fixed costs for the operation are expected to runat £5.1 million per year. The estimated sales volume is 64â000units in Year 1; 106â000 units in Year 2; 87â000 units in Year 3;78â000 units in Year 4; and 54â000 units in the final year. Theunit price of the new smart phone will be £485. The necessarymanufacturing equipment can be purchased for £34.5 million and willbe depreciated for tax purposes over a seven-year life(straight-line to zero). It is believed the value of themanufacturing equipment in five yearsâ time will be £5.5 million.Net working capital for the smart phones will be 20% of sales andwill have to be purchased at the end of the year. The cost of theraw materials is reflected in the variable unit cost. Changes inNWC will first occur at the end of Year 1 based on the first yearâssales. Emu Electronics has a 30% corporate tax rate and a 12%required return. Required: Shelly has asked Robert to prepare areport that answers the following questions: How sensitive is theNPV to changes in the quantity sold?
help me solve this?
EMU ELECTRONICS Emu Electronics is an electronics manufacturerlocated in Box Hill, Victoria. The companyâs managing director isShelly Chan, who inherited the company from her father. The companyoriginally repaired radios and other household appliances when itwas founded more than 50 years ago. Over the years, the company hasexpanded, and it is now a reputable manufacturer of variousspecialty electronic items. Robert McCanless, a recent graduate,has been hired by the company in the finance department. One of themajor revenue-producing items manufactured by Emu Electronics is asmart phone. Emu Electronics currently has one smart phone model onthe market and sales have been excellent. The smart phone is aunique item in that it comes in a variety of colours and ispre-programmed to play Jimmy Barnesâs music. However, as with anyelectronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models. EmuElectronics has spent £750â000 developing a prototype for a newsmart phone that has all the features of the existing one, but addsnew features, such as Wifi Tethering. The company has spent afurther £200â000 for a marketing study to determine the expectedsales figures for the new smart phone. Emu Electronicsâ productionmanager has produced estimates of the costs associated withmanufacture of the new smart phone. Variable costs are estimated at£205 per unit and fixed costs for the operation are expected to runat £5.1 million per year. The estimated sales volume is 64â000units in Year 1; 106â000 units in Year 2; 87â000 units in Year 3;78â000 units in Year 4; and 54â000 units in the final year. Theunit price of the new smart phone will be £485. The necessarymanufacturing equipment can be purchased for £34.5 million and willbe depreciated for tax purposes over a seven-year life(straight-line to zero). It is believed the value of themanufacturing equipment in five yearsâ time will be £5.5 million.Net working capital for the smart phones will be 20% of sales andwill have to be purchased at the end of the year. The cost of theraw materials is reflected in the variable unit cost. Changes inNWC will first occur at the end of Year 1 based on the first yearâssales. Emu Electronics has a 30% corporate tax rate and a 12%required return. Required: Shelly has asked Robert to prepare areport that answers the following questions: How sensitive is theNPV to changes in the quantity sold?
