Dysinger Enterprises Inc.
Dysinger Enterprises is a mid-level high tech firm residing in Austin, Texas which specializes in the development, manufacture, and distribution of a tablet computer called "Sorion." It main competitor is Apple Inc. which would initially seem suicidal in terms of a business plan and competition; however, the U.S. Justice Dept. has opened an antitrust case against Apple. As such, unbeknownst to anyone, Apple has decided it wants to help support Dysinger Enterprises financially and operationally to maintain a viable competitor and hence keep the antitrust cops off it back. Dysinger has a mole in Apple's operations who discovered Apple's plans with respect to Dysinger.
With this information (most valuable commodity in the world) Dysinger decided to incur $2,000,000 in research and development to bolster its new product it is developing called the "Dpad" and make it generically compatible with its cloud based operating strategy for the next eight to ten years. In conjunction with this, Dysinger decided to spend $1,386,000 to hire a market research firm named BDX and Associates. This market research firm conducted studies in 14 rapidly developing areas of the U.S and 2 similar areas in Canada to determine the most likely future sales levels in units and dollars that Dysinger could expect to realize.
The cost of the equipment to develop the new Dpad is approximately $61,275,000 which will be depreciated on a five-year MACRS schedule. At the end of five years it is expected that the reasonable salvage value of the investment will be ten percent of its original cost. Dysinger can manufacture the Dpad for which the variable cost per unit are expected to come in at $302 while overall fixed costs would be $8,625,000 per year. At this point BDX estimates that sales of the Dpad will be 112,000, 127,000, 148,000, 129,000, and 92,000 units respectively for the next five years with a sales price of $695 per unit.
Sales of the Sorion are expected to come in at 117,000, and 96,000 units respectively over the next two years if the Dpad is NOT developed. Of course, erosion is expected if the Dpad is developed as it would likely cannibalize the original Sorion product. It is expected that the new Dpad would reduce Sorion sales by 21,750 units per year for the next two years and market pressure would force the Sorion product to be discounted from its original price of $435/unit to $295/unit. Variable cost/unit of the Sorion are $189 and fixed costs currently are $3,137,000.
Working capital to support the Dpad will be 18.5% of yearly sales for the life of the product which is expected to end after five years for which net working capital will be released back to Dysinger. The timing of the working capital will be exactly the same as the cash inflows which will be at the end of each year.
Lastly, the marginal corporate Income tax rate is 36% and management dictates that the required rate of return for this project will be 13.5%. You are to determine NPV and the IRR of the project and give your recommendation to management as to whether or not the company should proceed with the project. In addition, you are to take the initiative and make a recommendation as to what you would reasonably change with respect to the project to make it more lucrative for Dysinger.
Your presentation must be in the form of an Excel spreadsheet professionally presented; this means clean it up, make it flowing in its presentation, and create eye appeal! There are to be NO constant number inputs which would destroy cell referencing for future use. To avoid this, you are to have a separate worksheet tab for data input that you can reference. Be careful, you will be penalized for any and all cell referencing that is destroyed. Additionally, you are do have separate worksheet tabs for Data Entry, NOV, and IRR. Do not submit your computer project early as I may come back and add requirements! Should I add a requirement-you will need a separate woksheet tab for each and every additional requirement that is assigned! When you are done, properly title and submit your work through Moodle by the deadline which is: 6:30 P.M. Tuesday, June 17th. If you have any questions, feel free to contact me.