Please answer accurately and with all calculations:

Harlow Appliance has just developed a new air fryer it believes will have broad market appeal. The company has performed marketing and cost studies that revealed the below information:

a. New equipment would have to be acquired to produce the air fryer. The equipment would cost $157,500 and have a six-year useful life. After six years, it would have a salvage value of $7,500.

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

YEAR	SALES IN UNITS
1	4,500
2	6,000
3	7,000
4-6	10,000

c. Production and sales of the air fryer would require working capital of $30,000 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.

d. The air fryer would sell for $70 each; variable costs for production, administration, and sales would be $40 per unit.

e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $100,000 per year. (Depreciation is based on cost less salvage value.)

f. To gain rapid entry into the market, the company would have to advertise and the costs would be:

YEAR	ANNUAL ADVERTISING ($)
1-2	$135,000
3	$112,500
4-6	$90,000

g. The company's required rate of return is 10%.

Requirements

Based on the above details, please complete the below requirements for a total grade of60 marks (5%).

1. 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. (20 marks)
2. Using the data computed in (1) above and other data provided in the case,
   1. determine the net present value of the proposed investment rounding present value factors to three decimal places and amounts to whole dollars. (18 marks)
   2. Would you recommend that Harlow accept the device as a new product? Why? (2 marks)
3. Assuming instead that the required rate of return is 12% rather than 10%,
   1. determine the net present value of the proposed investment rounding present value factors to three decimal places and amounts to whole dollars. (15 marks)
   2. Would you recommend that Harlow accept the device as a new product? Why? (2 marks)
4. When comparing parts 2 and 3, what general observation do you notice? (1 mark)

Notes YEAR 0 1 2 3 4 5 6 costofequipent 457500 210000 300000 300000 300000 initial working capital invested working capital 330000 -27500 -27500 -27500 -27500 price per unit 50, variable cost per unit -72500 -72500 -72500 -72500 20, contribution margin = (50320) per 112500 90000 90000 90000 unit, 30*no. Of units sold each year contribution margin @ S30per unit 27500 27500 27500 27500 -- 7500 -- 30000 25000 175000 -- 45000 52500 112500 135000 180000 annual depreciation = (cost of equipment salvage value)/years, {1565007500]/6 Less: depreciation total fixed cost = 100000 including depreciation, (10000027500) Less: Other fixed cost (100000dep) given Less: Annual advertising cost Note: since depreciation is a non cash expense, it is added back Add: depreciation salvage value added back Salvage value _ working capital realised Working capital realised _ sum total of all cash flows Total cash flow 187500 72500 27500 27500 72500 135000 72500 135000 27500 27500 27500 cash flow in the current yearrcash flow of previous year 1. Incremental cash flow - 2 NPV @ 10% $20,720.48 NPV(10%,cash inflowslinitial investment Yes since the NPV is positive, the new decvice can be accepted 3 NPV @12% 32295.09 NPV(12%,cash flows)rinitial investment No, here the NPV turns negative hence the device should not be accepted inverse relationship between rate of return and NPV When required rate of return goes up, the NPV goes down Note: since depreciation is a non cash expense, it is added back