MT217 – Unit 8 Challenge Problem

Please see below attachment.

 

 

 

Unit
MT217
Florida.
ago, the
years, th
of variou
departm

One of t
assistan
been ex
and is p
item, tec
compari
all the fe
The com
for the n

MT 217
the oper
70,000,
respectiv
be purch
schedule

Net work
NWC wi
rate.

MT 217’
costing

Sherry h

1. W
p

2. W
3. W

t 8 Ch
Electronics
The compa

e company o
he company
us electroni

ment.

the major re
nt (PDA). M
xcellent. The
reprogramm
chnology ch
son with ne

eatures of t
mpany has p
new PDA.

can manuf
ration are e
80,000, 10
vely. The u
hased for $
e.

king capital
ill be recove

’s capital st
16%,

has asked D

What is MT
roject

?

What is th

e

What is the

Unit 8    [Fi

hallen
s is a midsiz
any preside
originally re
y expanded
ic items. Do

evenue-pro
T 217 curre
e PDA is a
med to play
hanges rap
ewer mode
he existing
performed

facture the
estimated to
0,000, 85,0

unit price of
16.5 million

l investmen
ered at the

tructure is 4

Doug to pre

217’s WAC

IRR of the
NPV of the

nance] 

nge Pr
zed electro

ent is Sherry
epaired rad
d into manu
oug Brown

oducing item
ently has on
unique item

y Jimmy Bu
idly, and th
ls. MT 217
PDA but a
a marketing

new PDA fo
o run $4.5 m
000, and 75
the new PD

n and will b

nt for the PD
projects en

40% debt w

epare a rep

CC, which w

project?
project, ba

roblem
onics manuf
y Jones. W
ios and oth

ufacturing a
has been h

ms manufac
ne PDA mo
m in that it c
uffett music.
e current P
developed
dds new fe
g study to d

or $200 eac
million per y
5,000 per e
DA will be $
e depreciat

DAs will be
nd. MT 217

with an after

ort that ans

will be used

ased on the

m
facturer loc
When it was
her househo
and is now a
hired by the

ctured by M
odel on the
comes in a
. However,

PDA has lim
a prototype

eatures suc
determine t

ch in variab
year. The e
ach year fo
$340. The n
ted on a 5 y

$6,000,000
7 has a 35

r-tax cost of

swers the fo

d as the req

e WACC (re

cated in Me
s founded o
old applianc
a reputable

e company’s

MT 217 is a
market, an
variety of t
as with any

mited featur
e for a new
h as cell ph
the expecte

ble costs. F
estimated sa
or the next f
necessary
year straigh

0 this year.
percent cor

f 8% and 6

ollowing qu

uired rate o

equired rate

lbourne,
over 70 yea
ces. Over t

e manufactu
s finance

personal d
nd sales hav
tropical colo
y electronic

res in
w PDA that
hone capab
ed sales figu

Fixed costs
ales volume
five years,
equipment
ht-line

. Of course
rporate tax

0% equity

uestions:

of return for

e of return)?

1 

ars
the
urer

igital
ve
ors
c

has
bility.
ures

for
e is

can

e

r this

?

Unit 8    [Finance] 

 
 

2 
 

If you were Doug, how would you answer the questions? Submit your completed
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