Learning Assessment

Conch Republic Electronics

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company's finance department. One of the major revenue-producing items manufactured by Conch Republic is a smart phone. Conch Republic currently has one smart phone model on the market, and sales have been excellent. The smart phone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smart phone has limited features in comparison with newer models. Conch Republic spent $1,000,000 to develop a prototype for a new smart phone that has all the features of the existing smart phone but adds new features such as WiFi tethering, dual cameras, and larger screen. The company has spent a further $400,000 for a marketing study to determine the expected sales figures for the new smart phone. Conch Republic can manufacture the new smart phones for $550 each in variable costs. Fixed costs for the operation are estimated to run $6.1 million per year. The estimated sales volume is 205,000, 215,000, 175,000, 125,000, and 75,000 per year for the next five years, respectively. The unit price of the new smart phone will be $799. The necessary equipment can be purchased for $40.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $6.1 million. As previously stated, Conch Republic currently manufactures a smart phone. Production of the existing model is expected to be terminated in two years. If Conch Republic does not introduce the new smart phone, sales will be 95,000 units and 65,000 units for the next two years, respectively. The price of the existing smart phone is $699 per unit, with variable costs of $350 each and fixed costs of $4.3 million per year. If Conch Republic does introduce the new smart phone, sales of the existing smart phone will fall by 35,000 units per year, and the price of the existing units will have to be lowered to $499 each. Net working capital for the smart phones will be 25 percent of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC, but changes in NWC will first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 18 percent. Shelley has asked Jay to prepare a report that answers the following questions:

A. What is the payback period of the project?

B. What is the discounted payback period of the project?

C. What is the IRR of the project?

D. What is the net present value of the project?

E. At what selling price would the company be indifferent to taking on the project? (NPV = 0)

F. At what variable cost would the company be indifferent to taking on the project? (NPV = 0)

G. What recommendation would they make based on the pro-forma statements?

I have a spreadsheet started with values included but I'm stuck and don't know where to go next.

Problem 2:
Let’s look again at the two small-town driveway paving companies, Asphalt, Inc. and Blacktop Bros. The inverse demand curve for
paving services is: P = 1,600 – 2 Q, where quantity is measured in pave jobs per month and price is measured in dollars per job.
Assume Asphalt, Inc. has a marginal cost of $400 per driveway and Blacktop Bros. has a marginal cost of $200.
Answer the following questions:
a. Determine each firm’s reaction curve and graph it.
b. How many oil changes will each firm produce in Cournot equilibrium?
c. What will the market price of an oil change be?
d. How much profit does each firm earn?

Question 3 Small Town hospital splits its service into two categories: general care and obstetrics. Medicare will pay the hospital 120% of the total cost incurred to treat Medicare patients. The hospital has two service departments: general records and dietary. The general records’ costs are allocated to departments based upon a log of hours spent for each department. Dietary costs are allocated on the basis of the number of meals served. Results for the past period are summarized below Records Dietary General Care Obstetrics Labour cost $3,000 $8,000 $40,000 $60,000 Supplies $4,000 $35,000 $25,000 $15,000 Meals served 100 100 700 200 Record hours 40 50 100 50 During the period 60% of the general care patients were Medicare patients. None of the obstetrics patients were Medicare patients.

Required If you were the hospital’s senior accountant, how would you determine the amount of the medicare reimbursement? Advise the finance director, with supporting calculations, the implications of different service department cost allocation approaches in determining the amount of Medicare reimbursement.

Please use paper to do thankyou so much !!!!!!

Suppose two small-town video stores, store A and store B, compete. The two stores collude and agree to share the market equally. If neither store cheats on the agreement, each store will make $2,500 a day in economic profits. If only one store cheats, the cheater will increase its economic profits to $4,000 and the store that abides by the agreement will incur an economic loss of $1,000. If both firms cheat, they both will earn zero economic profits. Neither store has any way of policing the actions of the other.

(a) What is the payoff matrix if the game is played just once?

(b) What is the equilibrium if the game is played only once? Explain.

(c) What do you think will happen if the game is played many times? Why?

(d) What do you think will happen if a third firm comes into the market? Will it be harder or easier to achieve cooperation among the three firms? Why?

1. Suppose two small-town video stores, store A and store B, compete. The two stores collude and agree to share the market equally. If neither store cheats on the agreement, each store will make $2,500 a day in economic profits. If only one store cheats, the cheater will increase its economic profits to $4,000 and the store that abides by the agreement will incur an economic loss of $1,000. If both firms cheat, they both will earn zero economic profits. Neither store has any way of policing the actions of the other. (a) What is the payoff matrix if the game is played just once? (b) What is the equilibrium if the game is played only once? Explain. (c) What do you think will happen if the game is played many times? Why? (d) What do you think will happen if a third firm comes into the market? Will it be harder or easier to achieve cooperation among the three firms? Why?

Direct, Step-Down, and Reciprocal Methods, Assigning Costs to Departments Cost information for Red Oak Town Library is as follows: Support Departments Operating Departments Direct Costs Janitorial Administration Books Other Media Total Salaries $20,000 $40,000 $70,000 $50,000 $180,000 Supplies  10,000   5,000  15,000  20,000   50,000 Allocation Base Volumes Square metres      50      50     120      30      250 Employees       1       1       2       1        5 REQUIRED In addition to directly traceable costs, the library incurred $24,000 for a building lease. A. Allocate to departments any costs that have not been traced and then calculate total costs assigned to each department. B. Allocate the support department costs to the operating departments using the direct method. C. Allocate the support department costs to the operating departments using the step-down method. Allocate first the costs for the support department that has the largest direct costs.

Direct, Step-Down, and Reciprocal Methods, Assigning Costs to Departments Cost information for Red Oak Town Library is as follows:

REQUIRED In addition to directly traceable costs, the library incurred $24,000 for a building lease.

A. Allocate to departments any costs that have not been traced and then calculate total costs assigned to each department.

B. Allocate the support department costs to the operating departments using the direct method.

C. Allocate the support department costs to the operating departments using the step-down method. Allocate first the costs for the support department that has the largest direct costs.

Allocation base -

salaries and supplies - employees

building lease - square metres