Matheson Electronics has just developed a new electronic device it believes will have broad market appeal. The company has performed marketing and cost studies that revealed the following information:

New equipment would have to be acquired to produce the device. The equipment would cost $$315,000$ and have a six$-$year useful life. After six years, it would have a salvage value of about $$15,000.$

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

Year

Sales in Units

$1$

$9,000$

$2$

$15,000$

$3$

$18,000$

$46$

$22,000$

Production and sales of the device would require working capital of $$60,000$ to finance accounts receivable, inventories, and day$-$to$-$day cash needs. This working capital would be released at the end of the project$$s life.

The devices would sell for $$35$ each; variable costs for production, administration, and sales would be $$15$ per unit.

Fixed costs for salaries, maintenance, property taxes, insurance, and straight$-$line depreciation on the equipment would total $$135,000$ per year. $($Depreciation is based on cost less salvage value.$)$

To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be:

Year

Amount of Yearly

Advertising

$12$

$$180,000$

$3$

$$150,000$

$46$

$$120,000$

The company$$s required rate of return is $14\%.$

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 six years.

Using the data computed in $(1)$ above and other data provided in the problem, determine the net present value of the proposed investment. Would you recommend that Matheson accept the device as a new product?