Matheson Electronics has just developed a new electronic device that it believes 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 $258,000 and have a six-year useful life. After six years, it would have a salvage value of about $24,000.

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

YearSales in Units115,000220,000322,0004-624,000

c.Production and sales of the device would require working capital of $58,000 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 devices would sell for $45 each; variable costs for production, administration, and sales would be $30 per unit.

e.Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $147,000 per year. (Depreciation is based on cost less salvage value.)

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

YearAmount of Yearly

Advertising1-2$87,0003$67,0004-6$57,000

g.The company's required rate of return is 16%.

Use a spreadsheet to calculate the present value of the cash flows.

Required:1.Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the device for each year over the next six 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.(Any cash outflows should be indicated by a minus sign.)

Would you recommend that Matheson accept the device as a new product? yes or no?