New equipment would have to be acquired to produce the device. The equipment would cost $$318,000$ and have a six$-$year useful life. After six years, it would have a salvage value of about $$18,000.$

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

Year Sales in Units

$18,000$

$213,000$

$315,000$

$4617,000$

Production and sales of the device would require working capital of $$62,000$ to finance accounts receivable, inventories, and day$-$to$-$day cash needs. This working capital would be released at the end of the project$$s life.

The devices would sell for $$35$ each; variable costs for production, administration, and sales would be $$15$ per unit.

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.$)$

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

Year Amount of Yearly Advertising

$12$ $ $120,000$

$3$ $ $51,000$

$46$ $ $41,000$

The company$$s required rate of return is $8\%.$