Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please explain how you get the answers, especially how you get incremental fixed expenses and what to do woth the depreciation each year. Matheson Electronies

Please explain how you get the answers, especially how you get incremental fixed expenses and what to do woth the depreciation each year.
image text in transcribed
image text in transcribed
Matheson Electronies has just developed a new electrosic device it believes will have broad market appeal. The company has perfomed marketiag and cost studies that reveal. the following information: a. New equipment would have to be acquired to produce the device. The equipment would cost $315,000 and have a six-year useful life. After six years, it would have a salva value of about $15,000 b. Sales in units over the next six years are projected to be as follows: c. Prodection and sales of the device woold require working capital of $60.000 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 devices would sell for $35 each: variable costs for production, administration, and sales would be $15 per unit c. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total 5135 , 000 per year, (Depreciation is based on cos less salvage value.) f. To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be: g. The company's required nate of retum is 14%. g. The company's required rate of return is 14%. Required: 1. Compate the net cash intlow (incremental contribution margin minus incremental fixed expenses) anticipated from sale of the device for each year over the next six years; 2. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment. Would you recommend that Matheson accept the device as a new product

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions