Case study- Excel (Coral Bay Electronics)

Instructions for Coral Bay Electronics Case

1. Read the case carefully: The case content contains all the information needed to complete

this Excel spreadsheet. You don’t need to submit another document to answer the questions

stated in the case. These questions serve as guidelines to help you work on the spreadsheet.

2. Download and rename the Excel file: Download the Excel file attached in the folder and

rename it to "Coral Bay Electronics_YOUR NAME."

3. Open and complete the yellow Cells: In the Excel file, complete the cells marked in yellow.

a. Start with the input area, then proceed to the output area. Ensure you have the correct

numbers in the input area, as incorrect numbers will affect the accuracy of estimations in

the output area.

b. Identify the values for equipment spending, salvage value, R&D, and marketing study costs

in cells D4-D7. Provide an assessment and explanation on whether to include development

spending and marketing study costs in the relevant cash flow estimation in cells E6 and E7.

c. Fill in cells D10-H13 for new tracker sales, depreciation rate, sales of old trackers, and lost

sales of old trackers.

d. Obtain the values for the price of new trackers, variable costs of the new tracker, and other

variables in the input table. Be accurate when entering numbers for "price of old tracker,"

"price reduction of old tracker," and "variable cost of old tracker."

4. Begin working on the output area:

a. Ensure you use variables from the input area in formulas to calculate output area values.

For example, to calculate new tracker sales in cell D30, use the formula =D15*D10 rather

than typing numbers directly. Manually entering numbers in the output area is not

acceptable !

b. Start with sales estimation: Use new tracker sales and the price of new trackers from the

input area to complete cells D30-H30 for new tracker sales.

c. Estimate Side Effects: Estimate "Lost sales due to new tracker," which calculates sales loss

due to decreased sales units of old trackers times old trackers’ original price, and "Lost

revenue due to new tracker," which estimates revenue loss due to price reduction for old

trackers sold in years 1 and 2. Net sales of new trackers are calculated as new tracker sales

minus these negative side effects.

d. Complete variable cost estimation: Adjust variable cost (VC) savings on old trackers,

considering the drop in old tracker sales in years 1 and 2.

e. Calculate operating cash flow for Years 1 to 5: Use prior calculations for net sales and net

variable costs. Apply the MACRS table to calculate annual depreciation.

5. Prepare net working capital (NWC) estimation:

a. Cells C51-H51 represent the total NWC investment required each year. Cells C52-H52

show the amount of NWC invested or recovered each year. Negative numbers in row 52

indicate NWC investment (cash outflows), and positive numbers indicate NWC recovery

(cash inflows). Pay special attention to NWC recovery in year 5. Refer to class notes (p.

11-30) for details.

6. After-tax salvage value estimation (only in Year 5): Calculate the after-tax salvage value.

Pay attention to the capital gains or losses when selling the equipment. The after-tax salvage

value in H58 corresponds to the net terminal cash flow (class notes, p. 11-31).

7. Calculate net cash flow (Net CF): Combine all relevant cash flows above to calculate Net

Cash Flow in row 61 and determine cumulative Net CF in row 62.

8. Calculate financial metrics: Compute the payback period, profitability index (PI), net present

value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and NPV

based on the estimated net cash flows.

9. Provide conclusion and final assessment: Conclude with an assessment of the project below

row 71.