Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Secure Homes is pondering an opportunity to produce and sell a new smart home monitoring system that can be managed remotely using a smartphone
Secure Homes is pondering an opportunity to produce and sell a new smart home monitoring system that can be managed remotely using a smartphone app. The company has gathered the following data on probable costs and market potential: a. New equipment would have to be acquired to produce the monitoring system. The equipment would cost $322,000 and be usable for 12 years. After 12 years, it would have a salvage value equal to 10% of the original cost. b. Production and sales of the monitoring system would require a working capital investment of $141,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released for use elsewhere by the company after 12 years. c. An extensive marketing study projects sales in units over the next 12 years as follows: Year(s) 1 Sales in Units 4,270 2 7,060 4-12 10,060 12,230 d. The monitoring systems would sell for $140 each; variable costs for production, administration, and sales would be $78 per unit. e. To gain entry into the market, the company would have to advertise heavily in the early years of sales. The advertising program follows: Amount of Year(s) Advertising 1-2 3 4-12 $225,000 177,000 148,000 f. Other fixed costs for salaries, insurance, maintenance, and straight-line depreciation on equipment would total $379,000 per year. (Depreciation is based on cost less salvage value.) g. The company's required rate of return is 11%. (Ignore income taxes.)
Step 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