Manny Corporation developed a new product that it believes will have broad market appeal. The companys recent cost and marketing studies revealed the following:

a. New equipment costing $300,000 would need to be acquired to produce the product. The equipment is estimated to have a six-year useful life, with no salvage value at the end of the six years.

b. Sales in units over the next six years are projected as follows: Year Unit Sales 1 20,000 2 40,000 3 50,000 4-6 60,000

Production and sales of the new product would require working capital of $100,000 to finance accounts receivable, inventory, and day-to-day cash needs. This working capital would be released at the end of the projects life.

c. The product would sell for $35 each; variable costs for production, administration, and sales would be $22 per unit.

d. Fixed costs would total $225,000 per year. These fixed costs are for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the new equipment (see item a. above). Note that the annual depreciation on the new equipment referenced in item a. above is on a straight-line basis over the six-year life.

e. To gain rapid entry into the market, the company would need to advertise heavily. The advertising program would be:

Year	Annual Advertising
1-2	$180,000
3	$150,000
4-6	$120,000

f. The companys required rate of return is 16%. Ignore taxes.

1. Determine the net present value of the investment. To do this, you must first construct a schedule that shows the calculation of cash flows for the current year and for years 1 through 6. Then, calculate the NPV assuming a discount factor of 16%. Ignore taxes.

2.Would you recommend that Manny Corporation accept the new product in its product line?