A Company has ao 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 orighal 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 imvestment of $25,000 to finance accounts recelvable, lnventories, 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. D. The product will sell for $4G each; varable costs will be $23 per unit. E. To gain entry into the market, the compary would have to advertise hewlly in the : early vears of sales. The advertising program follows. Required 1. Compute the net cash inflow (cash recelpts 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 maling a recommendation to accept or reject the new product. Delverable: A professionally formatted Excel Workbok with formulas for all cilculations. Use a textbox in Excel for the executive summary. A Company has ao 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 orighal 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 imvestment of $25,000 to finance accounts recelvable, lnventories, 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. D. The product will sell for $4G each; varable costs will be $23 per unit. E. To gain entry into the market, the compary would have to advertise hewlly in the : early vears of sales. The advertising program follows. Required 1. Compute the net cash inflow (cash recelpts 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 maling a recommendation to accept or reject the new product. Delverable: A professionally formatted Excel Workbok with formulas for all cilculations. Use a textbox in Excel for the executive summary
