Have a hard time with problem 2B Matheson Electronics has just developed a new e

Question

Have a hard time with problem 2B 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: a. New equipment would have to be acquired to produce the device. The equipment would cost $150,000 and have a six-year useful life. After six years, it would have a salvage value of about $18,000 b. Sales in units over the next six years are projected to be as follows: Year Sales in Units 7,000 12,000 14,000 16,000 4-6 c. Production and sales of the device would require working capital of $47000 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. d. The devices would sell for $60 each; variable costs for production, administration, and sales would be $45 per unit e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $151,000 per year. (Depreciation is based on cost less salvage value.) f. To gain rapid entry into the market, the company would have to advertise heavily The edvertising costs would be:

Explanation / Answer

2b)since NpV is negative ,new product should not be accepted.

Year cash flow PVF @6% cash flow *PVF 1 -69000 .94340 -65094.6 2 6000 .89000 5340 3 25000 .83962 20990.5 4 65000 .79209 51485.85 5 65000 .74726 48571.9 6 65000 .70496 45822.4 6 18000 .70496 12689.28 Present value of net cash inflow 119805.33 less:Initial investment (150000_) net present value - 30195 rounded

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