Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Emery Communications Company is considering the production and marketing of a communications system that will increase the efciency of messaging for small businesses or branch
Emery Communications Company is considering the production and marketing of a communications system that will increase the efciency of messaging for small businesses or branch ofces of large companies. Each unit hooked into the system is assigned a mailbox number, which can be matched to a telephone extension number, providing access to messages 24 hours a day. Up to 20 units can be hooked into the system, allowing the delivery of the same message to as many as 20 people. Personal codes can be used to make messages condential. Furthermore, messages can be reviewed, recorded, cancelled, replied to, or deleted all during the same message play-back. Indicators wired to the telephone blink whenever new messages are present. To produce this product, a $1.75 million investment in new equipment is required. The equipment will last 10 years but will need major maintenance costing $150,000 at the end of its Sixth year. The salvage value of the equipment at the end of 10 years is estimated to be $100,000. If this new system is produced, working capital must also be increased by $90,000. This capital will be restored at the end of the products 10-year life cycle. Revenues from the sale of the product are estimated at $1.65 million per year. Cash operating expenses are estimated at $1.32 million per year. Required: 1. Prepare a schedule of cash ows for the proposed project. (Note: Assume that there are no income taxes.) 2. Assuming that Emerys cost of capital is 12%, compute the projects NPV. Should the product be produced
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started