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 $ and have a sixyear useful life with a salvage value of $

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

Year Sales in Units

Production and sales of the device would require working capital of $ to be released at the end of the projects life.

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

Fixed costs for salaries, maintenance, property taxes, insurance, and straightline depreciation on the equipment would total $ 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

$

$

$

The companys required rate of return is

Click here to view Exhibit B and Exhibit B to determine the appropriate discount factors using tables.

Required:

Compute the devices estimated net cash inflow incremental contribution margin minus incremental fixed expenses for each year over the next six years.

a Calculate the net present value of the proposed investment.

b Should Matheson invest in the new device?