George Matheson Is the general manger of Nancy Pelosi Electronics who has Just developed a new electronic device that it belleves

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 $$168,000$ and have a slx$-$year useful

Iffe. After six years, It would have a salvage value of about $$12,000.$

b$.$ Sales in units over the next six years are projected to be as follows:

c$.$ Production and sales of the device would require working capital of $$48,000$ to finance accounts recelvable, inventorles, 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 $$30$ each; varlable costs for production, administration, and sales would be $$15$ per unit.

e$.$ Fixed costs for salarles, malntenance, property taxes, insurance, and stralght$-$line depreclation on the equipment would total

$$132,000$ per year. $($Depreclation 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:

g$.$ The company's required rate of return is $7\%.$

Click here to vlew Exhlblt $14$B$-1$ and Exhiblt $14$B$-2,$ to determine the approprlate discount factor$($s$)$ using tables.

Required:

Compute the net cash Inflow $($Incremental contribution margin minus Incremental fixed expenses$)$ anticipated from sale of the device

for each year over the next slx 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?

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