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 following information:

1. New equipment would have to be acquired to produce the device. The equipment would cost $180,000 and have a six-year useful life. After six years, it would have a salvage value of about $12,000.
2. Sales in units over the next six years are projected to be as follows:

Year	Sales in Units
1	8,500
2	13,500
3	15,500
46	17,500

1. Production and sales of the device would require working capital of $49,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of the projects life.
2. The devices would sell for $35 each; variable costs for production, administration, and sales would be $20 per unit.
3. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $153,000 per year. (Depreciation is based on cost less salvage value.)
4. 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	$	47,000
3	$	58,000
46	$	48,000

1. The companys required rate of return is 9%.

Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. 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. (Negative amounts should be indicated by a minus sign.)

2-a. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.)

2-b. Would you recommend that Matheson accept the device as a new product?

EXHIBIT 78-1 Present Value of Sto EXHIBIT 78-2 Present Value of an Annuity of $1 in Arrears, ; Periods 4% 5% 5% 6% 7% 8% 9% 10% 11% 12% 3% 14% 15% 16% 17% 18% 19% 20% 25% 21% 22% 22% % % 23% 24% 25% Periods 4 58 6% 78% 98 10% 11% 12% 3% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 1 1 0962 0.952 0943 0935 0926 097 0909 0.901 0893 0885 0.87708700862 0855 0847 0.840 0833 0826 0.820 081 0806 0800 1 0.962 0952 0943 0935 0926 0917 09090901 0893 0885 0877 0.870 0862 0855 08470840 0833 0826 0820 0813 0806 0800 2 0.925 0907 0.890 0.873 0857 0.842 0826 0.812 0797 0783 0769 07560743 0731 0.718 0706 0694 0683 0.672 0661 0.650 0640 2 1886 1859 1833 1808 1783 1759 1736 1713 1690 1668 1647 1626 1605 1585 1566 1547 1528 1509 1492 1474 1457 1440 3 0889 0864 0840 0.816 0794 0772 0751 0731 0712 0693 0.675 0658 0641 0624 0609 0593 0579 0564 0.551 0537 0524 0512 3 2775 2.723 2673 2624 2577 2531 2487 2.444 2402 2361 2322 2283 2246 2210 2174 2140 2106 2074 2042 2011 1981 1952 4 0855 0.823 0792 0763 0735 0.708 0.683 0659 0.636 06130.592 0572 0.552 0534 0516 0499 0482 0.467 0451 0.437 0423 0410 4 3630 3546 3.4653387 332 32403170 3102 3037 2974 2914 2855 2798 2743 2690 2639 2589 2540 2494 2448 2404 2362 5 5 0822 0.784 0747 0713 0681 0650 0621 0593 0567 0543 0519 0497 04760456 0437 0419 0402 0386 0370 0355 0341 0328 5 4.452 43294212 4100 3993 3890 3791 3696 3.605 3517 3.433 3352 3274 3199 3127 3058 2991 2926 2864 2803 2745 2689 6 0790 0746 0705 0666 0630 0596 0.564 0535 0507 0480 0.456 0432 0.410 0390 0370 0352 0335 0319 0303 0.289 0275 0262 6 5242 5076 49174767 4623 4486 4355 4231 4111 3998 3889 3784 3685 3589 3498 3410 3326 3245 31673092 3020 2951 7 0760 071 0665 0.623 0583 0547 0513 0.482 0452 0425 0.400 0376 0354 0333 0314 0296 0279 0263 0249 0235 0222 0210 7 6,002 5786 5582 5389 5206 5033 4868 4712 4564 4423 4288 4160 4039 3922 3812 3706 3.605 3508 346 3327 3242 3161 SACS 8 0731 0.677 0.627 0.582 0540 0.502 0467 0.434 0404 0376 0.351 0327 0.305 0285 0266 0249 0233 0218 0204 0191 01790168 8 6733 6463 6.210 5971 5747 5535 5335 5.146 4968 4799 4639 4487 4344 4207 4078 3954 3837 3726 3619 3518 3421 3329 9 07030645 0592 0544 0500 0 460 0424 0.391 0361 0323 0.308 0284 0263 0243 0225 0 209 0194 01800167 0155 0144 0134 9 74357108 6.802 6515 6247 5995 5759 5537 5328 5132 4946 472 4607 4451 4303 4163 4031 3905 3786 3673 3566 3.463 10 0.676 0614 0558 0.508 0.463 0422 0386 0352 0322 0295 0.270 0247 0.227 0208 0191 0176 0162 0149 0137 026 0.116 0107 10 8111 7722 7360 7024 6710 6.418 6145 5889 5650 5.426 5216 5019 4833 4659 4494 4339 4.192 4054 3 923 3799 3682 3571 HOME 3000 EGA SADE 5740 40 CEO AROA 2002 ACA2073 2700 262 267 11 0650 0585 0527 0475 0429 0388 0350 037 0287 0261 0237 02150195 0178 0162 0948 0135 0123 01120103 0.094 0086 11 8760 830678877499 739 6.805 6495 6.207 5938 5687 5453 5234 5029 4836 4656 4486 4327 477 4035 3902 3776 3656 12 0625 0.557 049704440397 0356 0319 0286 0257 0231 0208 0187 0.168 0152 0.137 0124 01120102 0092 0083 0.076 0.069 12 9385 8863 8384 7943 7536 7161 6.814 6492 6194 5918 5660 5421 5197 4988 47934611 4439 4278 427 3985 3851 3725 34439990043 44103053651 13 0 601 0530 0.469 04150368 0326 0290 0258 0229 0204 0.182 0163 0145 0130 0116 0104 0.093 0084 00750068 0.061 0055 13 99869394 8853 8358 7904 7487 7103 6750 6424 6122 5842 5583 5342 5118 4910 4715 4533 4362 4203 4053 3912 3780 we 14 0577 0505 0442 0388 0340 0.299 0263 0232 0205 0181 0160 0141 0125 0111 0099 0.088 0078 0069 0062 0055 0049 0.044 14 10.563 9899 9295 8745 8244 77867367 6.982 6.628 6302 6.002 5724 5468 5229 5.008 4802 4611 4432 4265 4108 3962 3824 15 are 0555 0 481 0417 0.362 0315 0275 0239 0209 0183 0160 0140 0123 0108 0095 0.084 0074 0065 0057 0.051 0.045 0.040 0035 15 1111810380 9712 9108 8559 806176067191 6811 6462 6142 5847 5575 5324 5.092 4876 4675 4489 4315 4153 4001 3859 16 0534 0.458 0394 0339 0.292 0252 0218 0188 0163 0141 0123 0907 0093 0081 0071 0.062 0.054 0047 0042 00360032 0028 16 11652 10.838 10.106 9447 8851 83137824 73796.974 6604 6265 5954 5668 5405 5162 4938 4730 4536 4357 4189 4033 3887 17 0513 0436 0371 0317 0.270 0231 0198 01700146 0125 0108 0.093 0080 0.069 0.060 0052 0045 0039 0.034 0030 0.026 0023 17 22166 11274 10477 9763 9122 8544 8022 7549 7120 6729 6373 6047 5749 5475 5222 4990 4775 4576 4391 4219 4059 3910 18 0.494 0416 0350 0296 0.250 0212 0180 0153 0130 0111 0.095 0081 0.069 0059 0051 0044 0038 0032 0028 0024 0.021 0.018 18 12659 11690 10828 10.059 9372 8756 8201 7702 7250 6.840 6.457 6128 5818 5534 5273 5033 48124608 4419 4243 4080 3928 19 W 0475 0396 0331 0.277 0232 0194 0164 0138 0116 0098 0.083 0.070 0.060 0051 0043 0.037 0.031 0.027 0.023 0.0200017 0014 19 3.34 2085 11158 10336 9604 8950 8365 7839 7366 6938 6550 6198 5877 5584 5316 5070 4843 4635 4442 4263 4097 3942 20 0456 0377 0312 0258 0215 0.178 0149 0124 01040087 0073 0061 0051 0043 0037 0031 0026 0022 0019 0016 0.014 0012 20 13.590 2462 11470 10.594 9818 9129 8514 7963 7469 7025 6623 6259 5929 5628 5353 5101 4870 4657 4.460 4279 4110 3954 21 0439 0359 0294 0242 0199 0164 0135 0120093 0077 0064 0053 0044 0037 0031 0026 00220018 004 003 0011 0009 21 14.029 2821 11764 10.836 10.0179292 8649 8075 7562 7102 6687 6312 5973 5665 5384 51274891 4675 4476 4292 4121 3963 22 0422 0342 0278 0226 0184 01500123 0101 0083 0068 0056 0046 0038 0032 0.026 0022 0.018 0.015 0.013 0.011 0.009 0.007 22 14.451 3163 12042 11.061 10 201 9442 8712 81767645 7170 6743 6359 6011 5696 5410 5149 4909 4690 4488 4302 430 3970 ANA 23 0406 0326 0262 0211 017001380112 0.091 0074 0060 0049 0040 0033 0027 0.022 0018 0015 002 0010 0009 0.007 0006 23 1.857 13 489 12 303 11272 10371 9580 8883 8266 7718 7230 6.792 6399 6044 5723 5432 5167 4925 4703 4499 4311 437 3976 400 2001 202 203 24 0390 0310 0247 0197 0158 0126 0102 0082 0066 0053 0043 0.035 0.028 0023 0019 0015 0013 0010 0.008 0007 0.006 0005 24 15 247 3799 12550 11.469 10529 9707 8.985 8348 7784 7283 6835 6.434 6073 5745 5451 5182 4937 471 4507 4318 41433981 25 0.375 0295 023301840146 0.116 0.092 0074 0059 0047 0.038 00300024 0.020 0015 0.013 0010 0.009 0.007 0006 0.005 0,004 25 15.622 M094 12783 1654 10675 9823 907784227843 7330 6873 6.464 6.097 5766 5467 51954948 4721 4514 4323 497 3985 . 26 0361 0281 0220 0172 0135 0106 0.084 0.066 0053 0042 0.033 0.025 0.021 0.017 001 0011 0,009 0.007 0.006 0005 0.0040003 26 15983 14375 3003 11826 10810 9929 9161 8488 7896 7372 6906 6491 6118 5783 5480 5206 4956 4728 4520 4328 4151 3988 27 0347 0.268 0207 0161 0125 0098 0076 0060 0047 0.037 0.029 0023 0.018 0014 0011 0009 0.007 0.006 0005 0.004 0.003 0002 27 16330 14643 1 211 11987 10.935 10.027 9237 8548 7943 7409 6.935 6514 6136 5798 5492 5215 4964 4734 4524 4332 4154 3990 28 0333 0255 0196 01500116 0090 0.069 0054 0042 0033 0.026 0.020 0,016 0012 0010 0.008 0006 0005 0004 0.003 0.002 0.002 28 16663 14898 13.406 12.137 11051 10116 9307 8.602 7984 7441 6951 6534 6152 5.810 5502 5223 4970 4739 4528 4335 4157 3992 29 0321 0243 0185 0.141 0107 0082 0.063 0048 0037 0029 0022 0017 0044 0011 0008 0.006 0005 0004 0003 0002 0002 0.002 29 16984 5141 3.591 12.278 11158 10198 9370 8.650 8022 7470 6983 6551 6166 5820 5510 5229 49754743 4531 4337 41593994 30 0308 0231 0174 0131 0099 0075 0.057 0044 0033 0026 0.020 0,015 0,012 0.009 0.007 0.005 0.004 0003 0.003 0002 0.002 0.001 30 17.292 15372 3765 12.409 11258 10 274 9427 8694 8055 7496 7003 6566 6177 5829 5517 5235 4979 4746 4534 4339 41603995 40 0208 0142 0,097 0.067 0.046 00320022 0.015 0011 0008 0005 0,004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 40 19793 17159 15.046 3332 11925 10757 9779 8951 8244 7634 71056642 6233 5 871 5548 5258 4997 4760 4544 4347 466 3999