Question: t Given Data: Alpha Homes is poundering an opportunity to produce and sell a new smart home monitoring system that can be managed remotely using
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| Given Data: | ||||||||||
| Alpha Homes is poundering an opportunity to produce and sell a new smart home monitoring system that can be managed remotely using a smart phone app. The company has gathered the folloing data: | ||||||||||
| Probable costs and market potential: | ||||||||||
| New equipment cost | $250,000 | |||||||||
| Usable life in years | 10 | |||||||||
| Salvage value as % of cost | 10% | |||||||||
| Working capital investment | $100,000 | |||||||||
| Year when working capital would be released | 10 | |||||||||
| Projected sales: | ||||||||||
| Year | Units | |||||||||
| 1 | 5,000 | |||||||||
| 2 | 7,000 | |||||||||
| 3 | 10,000 | |||||||||
| 4-10 | 12,000 | |||||||||
| Unit selling price | $130 | |||||||||
| Variable costs per unit | $70 | |||||||||
| Advertising costs: | ||||||||||
| Year | Amount | |||||||||
| 1-2 | $200,000 | |||||||||
| 3 | $120,000 | |||||||||
| 4-10 | $110,000 | |||||||||
| Fixed costs per year for | ||||||||||
| Salaries, insurance, maintenance, depreciation | $350,000 | |||||||||
| Minimum rate of return | 10% | |||||||||
| Required: | ||||||||||
| Ignore income taxes | ||||||||||
| 1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the monitoring systems for each year over the next 10 years (15 Marks). | ||||||||||
| 2. Determine the net present value of the proposed investement. Would you recommend Alpha Homes invest in this new product? (15 Marks) | ||||||||||
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