Net Present Value of a New Product.

(a) New equipment to be acquired at a cost of $315,000, 6 year useful life. salvaga value after 6 years is $15,000.

(b) Sales in units over the 6 Years:

Year 1 = 9,000

Year 2 = 15,999

Year 3 = 18,000

Years 4-6 = 22,000

(c) Production & Sales require $60,000 working capitak to finance AR, inventory, and day-to-day cash needs. Working capital to be released at end of project's life (6 Years)

(d) Product Sells for $35 each, variable costs of production, admin & selling is $15 per unit.

(e) Fixed costs of salaries, mainrenance, property taxes, insurance, and straight-line depreciation of equipment is $135,000 per year (Depreciation consists of Cost - Salvage Value)

(f) Advertising:

Year 1-2: Amount of Yearly Advertising = $180,000

Year 3: Anount of Yearly Advertising = $150,000

Year 4-6: Amount of Yearly Advertising= $120,000

(g) Required Rate of Return is 14%,

QUESTIONS (Show work & Explain in Detail)

1. compute Net Cash Inflow (incremental contribution margin - incremental fixed expenses) anticipated for each year over 6 years.

2. using data from question 1 and (a) through (g), determine Net Present Value of investment. would tou reconnend the purchase of the equipment?