Case 14-32 (Algo) Net Present Value Analysis of a New Product (LO14-2] George Matheson is the general manger of Nancy Pelosi Electronics who has just developed a new electronic device that it believes will have broad market appeal. The company has performed marketing and cost studies that revealed the following information a New equipment would have to be acquired to produce the device. The equipment would cost $198,000 and have a six-year useful life. After six years, it would have a salvage value of about $24,000 b. Sales in units over the next six years are projected to be as follows: 5628 Year 1 2 Sales Units 10,000 15,000 17.000 19,000 4-6 c Production and sales of the device would require working capital of $52,000 to finance accounts receivable, inventories, and day to-day cash needs. This working capital would be released at the end of the project's life d. The devices would sell for $50 each, variable costs for production, administration, and sales would be $35 per unit e Fixed costs for salaries, maintenance, property taxes, insurance and straight line depreciation on the equipment would total $140,000 per year. (Depreciation is based on cost less salvage value) 1. To gain rapid entry into the market, the company would have to advertise heavily The advertising costs would be e rixed COSES Tor Sdianes, maintenance, propeny taxes, insurance, anu su agnone depreciduon on the equipment woulu Old $140,000 per year. (Depreciation is based on cost less salvage value.) f. To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be Year 1-2 2 4-6 Amount of Yearly Advertising $55,000 $ 61,000 $51,000 g The company's required rate of return is 12% Click here to view Exhibit 148.1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables Required: 1 Compute the net cash inflow (incremental contribution margin minus incremental fixed expenses) anticipated from sale of the device for each year over the next six years 2-a. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment 2b. Would you recommend that Matheson accept the device as a new product? Complete this question by entering your answers in the tabs below