tising program would be Year Sales In Units CASE 15-32 Net Present Value Analysis of a New Product [LOL] Matheson Electronics has just developed a new electronic device that it believes will have broad To gain rapid entry into the market, the company would have to advertise heavily. The adver. market appeal. The company has performed marketing and cost studies that revealed the follow- ing 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 salvage value of Amount of Yearly about $15,000. Year Advertising b. Sales in units over the next six years are projected to be as follows: 1-2 $180,000 3 $150,000 9,000 4-6 $120,000 2 15,000 3 18,000 4-6 22,000 & The company's required rate of return is 14%. c. Production and sales of the device would require working capital of $60.000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be Required: released at the end of the project's life. 1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated d. The devices would sell for $35 each; variable costs for production, administration, and sales from sale of the device for each year over the next six years. would be $15 per unit. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line de perechilige 2. Using the data computed in (1) above and other data provided in the problem, determine the on the equipment would total $135,000 per year. (Depreciation is based on cost less salvage net present value of the proposed investment. Would you recommend that Matheson accept value.) the device as a new product? e