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Matheson Electronics has just developed a new electronic device that it belleves will have broad market appeal. The company has performed marketing and cost studies
Matheson Electronics 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 $ and have a sixyear useful
life. After six years, it would have a salvage value of about $
b Sales In units over the next slix years are projected to be as follows:
c Production and sales of the device would require working capital of $ to finance accounts recelvable, inventories, and day
today cash needs. This working capital would be released at the end of the project's life.
d The devices would sell for $ each; variable costs for production, administration, and sales would be $ per unit.
e Fixed costs for salaries, maintenance, property taxes, insurance, and straightline depreciation on the equipment would total
$ 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
Click here to view Exhlbit and Exhiblt to determine the appropriate discount factors 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 six years.
a Using the data computed in above and other data provided in the problem, determine the net present value of the proposed
Investment.
b Would you recommend that Matheson accept the device as a new product?
Complete this question by entering your answers in the tabs below.
Compute the net cash inflow incremental contribution margin minus incremental flxed expenses anticipated from sale of the
device for each year over the next six years. Negative amounts should be indicated by a minus sign.
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