Problem1 Northern Lights ltd has just developed a new electronic device which, when mounted on an automobile, will tell the driver how much of oxygen is consumed by the engine each second. The device can be mounted on any model or make of automobile in a few minutes' time, and with negligible cost The company is anxious to begin production of the new device. To this end, marketing and cost studies have been made to determine probable costs and market potential. These studies have provided the following information New equipment would have to be acquired at the beginning of Year 1 in order to produce the device. The equipment would cost $315,000 (payable immediately)and have a 4-year useful life After 4 years, it would have a salvage value of about $15,000. Company uses straight-line depreciation method. Sales in units over the next 4 years are projected to be 17000 units each year. Production and sales of the device would require working capital of $60,000 at the very beginning of the project in order 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 $10 per unit. Fixed costs, which include salaries, maintenance, property taxes, insurance, and depreciation on the equipment, would total $190,000 per year. (Depreciation is based on cost less salvage value.) In order to gain rapid entry into the market, the company would have to advertise heavily. The advertising program would have annual costs of $180000 during the first two years. Northern Lights' board of directors has specified that all new product lines must promise a return of at least 15 percent in order to be acceptable (b) Suppose that instead of immediate payment for equipment the company was offered to make 3 equal payments starting at the end of the first year. Determine the maximum amount Northern Lights would agree to pay. (4 marks)