Question

Orange Computer decides to sell a new line of foldable smartphones. The phones will sell for $965 per unit with variable cost of $487 per device. The company has spent $840,000 for a marketing study that determined the company will sell 94,000 new generation foldable handsets per year for seven years. The marketing study also determined that the company will lose sales of 9,300 units per year of its prior generation, but larger screen sized handsets. The prior generation, larger screen handsets sell for $1,395 and have variable costs that are 51.25% of the selling price. The company will also increase sales of its companion watch by 12,200 per year. The watch sells for $396 and has variable costs of $183 of total selling price. The fixed cost for the company each year is $15,750,000. The company has already spent $1,600,000 on research and development for the new gadgets. The plant and equipment required will cost $59,100,000 and will be depreciated on a straight-line basis to zero. The equipment will be worthless at the end of the project with no marketable value. The new smartphone will require an increase in net working capital of $4,325,000 that will be returned at the end of the project. The tax rate is 24 percent, and the cost of capital is 13 percent.

Answer 1

The question relates to analyzing the financial effects of Orange Computer launching a new smartphone line, considering costs, lost sales from current products, and gains from related products, within the context of their overall business strategy.

Step-by-step explanation:

The student's question involves calculating the financial implications of launching a new foldable smartphone line by Orange Computer, including lost sales of an older product line, additional sales of a companion product, and various costs like marketing, research and development, equipment, and changes in working capital. This assessment typically requires a cost-benefit analysis and understanding of financial concepts such as variable costs, fixed costs, depreciation, tax impacts, and net present value (NPV). The student may be asked to perform a break-even analysis or some form of investment appraisal such as calculating the NPV or the internal rate of return (IRR) for the new product launch. Note that the SEO keywords from the information provided are not directly related to this question and require different financial calculations than the example.

Answer 2

The question involves a business case study requiring an in-depth financial analysis of a computer company's decision to launch a new foldable smartphone, accounting for various costs, sales impacts, investment, and financial metrics to assess the project's viability.

Step-by-step explanation:

The scenario described involves a computer company's business decision and implications, particularly dealing with pricing, costs, and market impacts. The company in the provided case is introducing a new foldable smartphone, affecting other product lines and requiring an analysis of various financial factors, including variable costs, fixed costs, lost sales, increased sales of complementary products, research and development costs, depreciation, change in net working capital, tax rate, and cost of capital. For instance, the variable cost for the new foldable smartphone is $487 per unit and the fixed cost for the company each year is $15,750,000. This kind of analysis is essential for measuring project feasibility and profitability, which are core topics in business finance or managerial accounting courses at the collegiate level. The challenge would involve computing net income, cash flows, and ultimately the project's net present value (NPV) or internal rate of return (IRR) to make an informed decision about proceeding with the product launch.