Atlas Company has an opportunity to produce and sell a revolutionary new mini microwave. To determine whether this would be a profitable venture, the company has gathered the following data on probable costs and market potential. New equipment would have to be acquired to produce the mini microwave. The equipment would cost $100,000 and be usable for 15 years. After 15 years, it would have a salvage value equal to 10% of the original cost. The asset will be sold at salvage value at the end of the assets life.

An extensive marketing study projects sales in units over the next 15 years as follows. Year Sales in Units per year 1 4,000 2 7,000 3 10,000 4-15 12,000

D. The mini microwave would sell for $75 each; variable cost for production, administration and sales would be $45 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 advertising 1-2 $70,000 3 $50,000 4-15 $40,000

F. Other fixed costs for salaries, insurance, maintenance, and straight-line depreciation on equipment would total $127,500 per year.

G. The companys required rate of return is 10%.

(Ignore income tax) 1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from the sale of the mini microwave for each year over the next 15 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. (hint there will be uneven cash flows)

3. Using the data in (1) above and the other data provided in the problem, determine the payback period of the proposed investment. (hint there will be uneven cash flows)

3. Write an executive summary to the CFO, Cindy Grinch, explaining your findings and making a recommendation to accept or reject the new mini microwave project.