(CMA, adapted) CASE 13-32 Net Present Value Analysis of a New Product [L013-2j 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 follovw ing information: a. New equipment would have to be acquired to produce the device. The cquipment would cost $315,000 and have a six-year useful life. After six years, it would have a salvage value of about $15,000. Sales in units over the next six years are projected to be as follows: b. Year Sales in Units 9,000 18,000 3 22,000 c. Production and sales of the device would require working capital of S60,000 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 The devices would sell for S35 each; variable costs for production, administration, and sales would be S15 per unit. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $135,000 per year. (Depreciation is based on cost less salvage value.) d. e. f. To gain rapid entry into the market, the company would have to advertise heavily. The adver- tising program would be Amount of Yearly Advertising Year 3 4-6 $180,000 $150,000 $120,000 g. The company's required rate of return is 14% Required: 1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the device for cach year over the next six years 2. Using the data computed in () 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