Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please help ASAP, I'm stuck, thank you! Matheson Electronics has just developed a new electronic device that it believes will have broad market appeal. The
Please help ASAP, I'm stuck, thank you!
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 $216,000 and have a six-year useful life. After six years, it would have a salvage value of about $12,000. b. Sales in units over the next six years are projected to be as follows: c. Production and sales of the device would require working capital of $53,000 to finance accounts receivable, inventories, and dayto-day cash needs. This working capital would be released at the end of the project's life. d. The devices would sell for $55 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 $120,000 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 costs would be: g. The company's required rate of return is 14%. Required: 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. 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. 2-b. Would you recommend that Matheson accept the device as a new productStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started