A Company has an opportunity to produce and sell a new product. To determine whether this would be a profitable venture, the company has gathered the following data on probable costs and market potential. A. New equipment would have to be acquired to produce the product. The equipment would cost $177,000 and be usable for 8 years. After 8 years, it would have a salvage value equal to 6% of the original cost. The asset will be sold at salvage value at the end of the asset's life. B. Production and sales of the product will require a working capital investment of $25,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released for use elsewhere after 8 years. (hint: this is a cash out flow at the beginning of the project and a cash in-flow at the end of the 8 years) C. An extensive marketing study projects sales in units over the next 8 years as follows. Year Sakes in Units 1234+33,0008,0009,00010,000 D. The product will sell for $46 each; variable costs will be $23 per unit. E. To gain entry into the market, the company would have to advertise heavily in the early years of sales. The advertising program follows. Yeat Amount of yearly adiertising per ycar 12.570,000 3$45,000 43540,000 F. Other fixed costs for salaries, insurance, maintenance, and straight-line depreciation on equipment would total $135,200 per year. G. The company's corporate tax rate is 20% G. The company's required rate of return is 9%. Required 1. Compute the net cash inflow (cash receipts less the beginning of the project and a cash in-flow at the end of the 8 years) C. An extensive marketing study projects sales in units over the next 8 years as follows. Year Sales in Units 1234.83,0008,0009,00010,000 D. The product will sell for $46 each; variable costs will be $23 per unit. E. To gain entry into the market, the company would have to advertise heavily in the early years of sales. The advertising program follows. Year Amount of yearly atvertising per yeat 1+2570.000 3. 545,000 4.8540,000 F. Other fixed costs for salaries, insurance, maintenance, and straight-line depreciation on equipment would total $135,200 per year. G. The company's corporate tax rate is 20% G. The company's required rate of return is 9%. Required 1. Compute the net cash inflow (cash receipts less annual cash operating expenses) anticipated from the sale of the product for each year over the next 8 years. 2. Using the data in (1) above and the other data provided in the problem, determine the net present value of the proposed investment. 3. Write an executive summary to the CFO, Juan Martinez, explaining your findings and making a recommendation to accept or reject the new product. Deliverable: A professionally formatted Excel Workbook with formulas for all calculations. Use a textbox in Excel for the executive summary
