Clarion Company is considering an opportunity to produce and sell a revolutionary new smoke 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: New equipment would have to be acquired to produce the smoke detector. The equipment would cost $250,000 and be usable for 8 years. After 8 years, it would have a salvage value equal to 10% of the original cost. Production and sales of the smoke detector would require a working capital investment of $55,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released for use elsewhere after 8 years. An extensive marketing study projects sales in units over the next 8 years as follows: Year(s) Sales in Units 1 9,000 2 12,000 3 15,000 48 17,000 The smoke detectors would sell for $30 each; variable costs for production, administration, and sales would be $15 per unit. To gain entry into the market, the company would have to advertise heavily in the early years of sales. The advertising program follows: Year(s) Amount of Advertising 12 $ 84,000 3 64,000 48 54,000 Other fixed costs for salaries, insurance, maintenance, and straight-line depreciation on equipment would total $170,500 per year. (Depreciation is based on cost less salvage value.) The companys required rate of return is 6%. (Ignore income taxes.)

Required: 1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the smoke detectors for each year over the next 8 years. (Enter any cash outflows with a minus sign. Round your intermediate and final answers to the nearest dollar amount.) The net cash inflow from sales of the device for each year would be:

2-a. Using the data computed in requirement (1) above and other data provided in the problem, determine the net present value of the proposed investment. (Hint: Use Microsoft Excel to calculate the discount factor(s).) (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to nearest whole dollar amount.) 2-b. Would you recommend that Clarion Company accept the smoke detector as a new product? multiple choice Yes No