Matheson Electronics developed a new electronic device it believes will have broad market appeal. The company gathered the following estimates:

The equipment needed to make the device would cost $$120,000$ and have a six$-$year useful life with a salvage value of $$18,000.$

Sales in units over the next six years are projected to be as follows:

Year Sales in Units

$16,000$

$211,000$

$313,000$

$4615,000$

Production and sales of the device would require working capital of $$44,000$ to be released at the end of the project$$s life.

The device would sell for $$45$ each with a variable cost of $$25$ per unit.

Fixed costs for salaries, maintenance, property taxes, insurance, and straight$-$line depreciation on the equipment would total $$132,000$ per year. $($Depreciation is based on cost less salvage value.$)$

To gain rapid entry into the market, the company would invest heavily in advertising as follows:

Year Amount of Yearly Advertising

$12$ $ $74,000$

$3$ $ $53,000$

$46$ $ $43,000$

The company$$s required rate of return is $15\%.$

Click here to view Exhibit $14$B$-1$ and Exhibit $14$B$-2,$ to determine the appropriate discount factor$($s$)$ using tables.

Required:

$1.$ Compute the device$$s estimated net cash inflow $($incremental contribution margin minus incremental fixed expenses$)$ for each year over the next six years.

$2-$a$.$ Calculate the net present value of the proposed investment.

$2-$b$.$ Should Matheson invest in the new device?