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:

New equipment would have to be acquired to produce the device. The equipment would cost $ and have a sixyear useful life. After six years, it would have a salvage value of about $

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 finance accounts receivable, inventories, and daytoday cash needs. This working capital would be released at the end of the projects life.

The devices would sell for $ each; variable costs for production, administration, and sales would be $ 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 have to advertise heavily. The advertising costs would be:

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 net cash inflow incremental contribution margin minus incremental fixed expenses anticipated from sale of the device for each year over the next six years.

a Using the data computed in above and other data provided in the problem, determine the net present value of the proposed investment.

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