Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Check my work Matheson Electronics has just developed a new electronic device that it believes will have broad market appeal. The company has performed marketing

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

Check my work Matheson Electronics 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: Sales in Units Year 1 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.) f. To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be: Amount of Yearly Advertis ing $55,000 $61,000 $51,000 Year 1-2 3 4-6 g. The company's required rate of return is 12% 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. 2-b. Would you recommend that Matheson accept the device as a new product? Complete this question by entering your answers in the tabs below Req Req 2A Req 2B 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. (Negative amounts should be indicated by a minus sign.) Year 3 Year 1 Year 2 Year 4-6 Incremental contribution margin Incrememental fixed expenses Net cash inflow (outflow) Req 1 > Req 2A Complete this question by entering your answers in the tabs below. Req Req 2B Req 2A Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.) Net present value Req 1 Req 2B Complete this question by entering your answers in the tabs below. Req Req 2A Req 2B Would you recommend that Matheson accept the device as a new product? OYes No Req 2B Req 2A

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Determination A Conceptual Approach

Authors: Joel S. Demski

1st Edition

0813803608, 978-0813803609

More Books

Students also viewed these Accounting questions

Question

=+a) Is this an experimental or observational study? Explain.

Answered: 1 week ago