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 $300,000 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	10,000
2	15,000
3	17,000
46	19,000

c.	Production and sales of the device would require working capital of $61,000 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 $30 each; variable costs for production, administration, and sales would be $10 per unit.
e.	Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $174,000 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	$	181,000
3	$	50,000
46	$	40,000

g.	The companys required rate of return is 13%.

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. Answer is complete but not entirely correct Year 1 Year 3 Year 2 Year 4-6 10,000 15,000 17,000 19,000 Sales in units 300,000 450,000 510,000 V s 570,000V Sales in dollars 100,000 150,000 170,000 V 190,000 Variable expenses Contribution margin 200,000 300,000 340,000 380,000 Fixed expenses: 174,000X 174,000X 174,000X 174,000X Salaries and other 181,000 181,000 50,000 V 40,000 Advertising 355.000 355,000 224,000 Total fixed expenses 214,000 Net cash inflow (outflow) 5 (155,000) S (55,000) 116,000 S 166.000 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. Round discount factor(s) to 3 decimal places.) Answer is not complete Now 1 2 3 4 5 300,000X Cost of equipment Working capital (55,000x s (55,000)x s 116,000x s 166,000x 166,000x s 166,000x Yearly net cash flows 61,000 Release of working capital 24,000 Salvage value of equipment Total cash flows 361,000 (155,000) (55,000) 116,000 166,000 166,000 251,000 Discount factor (13%) Present value S 0 Net present value