Data Problem 3
Matheson Electronics has just developed a new device which, when mounted on an automobile,
will tell the driver how many miles the automobile is traveling per gallon of gasoline.
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:
MATHESON ELECTRONICS
Probable costs and market potential:
New equipment cost	$315,000		Needed to produce device.
Usable life in years	12
Salvage value	$15,000		At the end of 12 years.
Working capital investment	$60,000		Released at the end of 12 years.
Projected sales over next 12 years:
	Year	Unit Sales
	1	6,000
	2	12,000
	3	15,000
	4-12	18,000
Unit selling price	$35
Variable costs per unit	$15		for production, admin and selling.
Fixed costs per year	$135,000		Salaries, Maintenance, property
			taxes, insurance & depreciation.
Advertising costs:
	Year	Amount
	1-2	$180,000
	3	$150,000
	4-12	$120,000
Minimum rate of return	14%
Required:
1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated
from sale of the device for each year over the next 12 years.
2. Using the data computed in (1) above and other data provided in the problem, determine the net
present value of the proposed investment.