Matheson Electronics has just developed a new electronic device it believes will have broad market appeal. The company has performed marketing and cost studies that revealed the following information: New equipment would have to be acquired to produce the device. The equipment would cost $$315,000$ and have a six$-$year useful life. After six years, it would have a salvage value of about $$15,000.$ Sales in units over the next six years are projected to be as follows: Year Sales in Units $19,000215,000318,0004622,000$ Production and sales of the device would require working capital of $$60,000$ to finance accounts receivable, inventories, and day$-$to$-$day cash needs. This working capital would be released at the end of the project$$s life. The devices would sell for $$35$ each; variable costs for production, administration, and sales would be $$15$ per unit. Fixed costs for salaries, maintenance, property taxes, insurance, and straight$-$line depreciation on the equipment would total $$135,000$ per year. $($Depreciation is based on cost less salvage value.$)$ To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be: Year Amount of Yearly Advertising $12$ $$180,0003$ $$150,00046$ $$120,000$ The company$$s required rate of return is $14\%.$ Required: Compute the net cash inflow $($incremental contribution margin minus incremental fixed expenses$)$ anticipated from sale of the device for each year over the next six years. Using the data computed in $(1)$ 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?

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Answer To compute the net cash inflow anticipated from the sale of the device for each year over th... View the full answer