Capital Budgeting Case Anderson Company has an opportunity to produce and sell a revolutionary new carbon monoxide detector for homes. 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 carbon monoxide detector. The equipment would cost $100,000 and be usable for 12 years. After 12 years, it would have a salvage value equal to 10% of the original cost. B. Production and sales of the carbon monoxide detector would require a working capital investment of $35,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released for use elsewhere after 12 years. (hint: this will be a cash outflow at the beginning of the project and a cash inflow at the end of year 12) C. An extensive marketing study projects sales in units over the next 12 years as follows. Year Sales in Units 1 4,000 2 7,000 3 4-12 10,000 12,000 D. The carbon monoxide detectors would sell for $45 each; variable cost for production, administration and sales would be $25 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 4-12 $50,000 $40,000 F. Other fixed costs for salaries, insurance, maintenance, and straight-line depreciation on equipment would total $127,500 per year. G. The company's required rate of return is 18%. Revised 07/03/17