Question
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
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 $264,000 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: |
Year | Sales in Units |
1 | 13,000 |
2 | 18,000 |
3 | 20,000 |
46 | 22,000 |
|
c. | Production and sales of the device would require working capital of $59,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of the projects life. |
d. | The devices would sell for $50 each; variable costs for production, administration, and sales would be $35 per unit. |
e. | Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $169,000 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: |
Year | Amount of Yearly Advertising | ||
12 | $ | 88,000 | |
3 | $ | 68,000 | |
46 | $ | 58,000 | |
|
g. | The companys required rate of return is 16%.
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started