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Harlow Appliance has just developed a new air fryer it believes will have broad market appeal. The company has performed marketing and cost studies that
Harlow Appliance has just developed a new air fryer it believes will have broad market appeal. The company has performed marketing and cost studies that revealed the below information: a. New equipment would have to be acquired to produce the air fryer. The equipment would cost $157,500 and have a six-year useful life. After six years, it would have a salvage value of $7,500. b. Sales in units over the next six years are projected to be as follows: YEAR SALES IN UNITS 4,500 6,000 3 7,000 4-6 10.000 c. Production and sales of the air fryer would require working capital of $30,000 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 air fryer would sell for $70 each; variable costs for production, administration, and sales would be $40 per unit. e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $100,000 per year. (Depreciation is based on cost less salvage value.) f. To gain rapid entry into the market, the company would have to advertise and the costs would be: YEAR ANNUAL ADVERTISING (S) 1-2 $135.000 3 $112.500 4-6 $90.000 g. The company's required rate of return is 10%
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