@ 100% Back Capital Budgeting-Case.docx Your company has just developed a new electronic device that you believe will have broad market appeal. Your cost and marketing studies have revealed the following information: a. New equipment would have to be purchased to produce the device. The equipment would cost $315,000 and would have a useful life of 6 years, at the end of which, it will have a salvage value of $15,000. b. Sales in units are projected to be the following over the next 6 years: year 1--9,000 units, year 2---15,000 units, year 3---18,000 units, and years 4-5-6---22,000 units in each year. c. Production and sales of the device will require about $60,000 of working capital to finance the additional accounts receivable, inventories, and day-to-day cash needs. The working capital will be recovered at the end of the product's life in the sixth year. d. The devices will sell for $35 each, and variable costs for production, and SGA will be $15 per unit. e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation are estimated to be $135,000 per year. Depreciation is based on cost less salvage value over the useful life of the equipment. f. To gain rapid entry into the market, the company will have to spend heavily on advertising at the following amounts: year 1---$180,000, year 2---$180,000, year 3--- $150,000, years 4-5-6---$120,000 for each year. g. The company's required rate of return is 14%. Required: 1. Annual project cash flows 2. Net present value (NPV) 3. Internal rate of return (IRR) 4. Payback 5. Would you undertake this new project? Why or why not? 6. Are there any qualitative factors that you would consider in this decision