Data Problem 3 Matheson Electronics has just developed a new device which, when
ID: 2477521 • Letter: D
Question
Data Problem 3 Matheson Electronics has just developed a new device which, when mounted on an automobile, will tell the driver how many miles the automobile is traveling per gallon of gasoline. The company is anxious to begin production of the new device. To this end, marketing and cost studies have been made to determine probable costs and market potential. These studies have provided the following information: MATHESON ELECTRONICS Probable costs and market potential: New equipment cost $315,000 Needed to produce device. Usable life in years 12 Salvage value $15,000 At the end of 12 years. Working capital investment $60,000 Released at the end of 12 years. Projected sales over next 12 years: Year Unit Sales 1 6,000 2 12,000 3 15,000 4-12 18,000 Unit selling price $35 Variable costs per unit $15 for production, admin and selling. Fixed costs per year $135,000 Salaries, Maintenance, property taxes, insurance & depreciation. Advertising costs: Year Amount 1-2 $180,000 3 $150,000 4-12 $120,000 Minimum rate of return 14% Required: 1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the device for each year over the next 12 years. 2. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment. Data Problem 3 Matheson Electronics has just developed a new device which, when mounted on an automobile, will tell the driver how many miles the automobile is traveling per gallon of gasoline. The company is anxious to begin production of the new device. To this end, marketing and cost studies have been made to determine probable costs and market potential. These studies have provided the following information: MATHESON ELECTRONICS Probable costs and market potential: New equipment cost $315,000 Needed to produce device. Usable life in years 12 Salvage value $15,000 At the end of 12 years. Working capital investment $60,000 Released at the end of 12 years. Projected sales over next 12 years: Year Unit Sales 1 6,000 2 12,000 3 15,000 4-12 18,000 Unit selling price $35 Variable costs per unit $15 for production, admin and selling. Fixed costs per year $135,000 Salaries, Maintenance, property taxes, insurance & depreciation. Advertising costs: Year Amount 1-2 $180,000 3 $150,000 4-12 $120,000 Minimum rate of return 14% Required: 1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the device for each year over the next 12 years. 2. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment.Explanation / Answer
1)
Net Cash flow is shown by Row F
2)
The Net present value of the project is $131,921.20 and the project is viable.
Calculations Year 0 1 2 3 4 5 6 7 8 9 10 11 12 A Projected Sales 0 6000 12000 15000 18000 18000 18000 18000 18000 18000 18000 18000 18000 B = A x $35 Total Sales 0 210000 420000 525000 630000 630000 630000 630000 630000 630000 630000 630000 630000 C = A x $15 Variable Costs 0 -90000 -180000 -225000 -270000 -270000 -270000 -270000 -270000 -270000 -270000 -270000 -270000 D Fixed Costs 0 -135000 -135000 -135000 -135000 -135000 -135000 -135000 -135000 -135000 -135000 -135000 -135000 E Advertising Costs 0 -180000 -180000 -150000 -120000 -120000 -120000 -120000 -120000 -120000 -120000 -120000 -120000 F = B + C + D + E Net Cash Flow 0 -195000 -75000 15000 105000 105000 105000 105000 105000 105000 105000 105000 105000 G PV factor @ 14% 0 0.8772 0.7695 0.6750 0.5921 0.5194 0.4556 0.3996 0.3506 0.3075 0.2697 0.2366 0.2076 H = F x G Present Value 0 -171052.63 -57710.06 10124.57 62168.43 54533.71 47836.59 41961.92 36808.70 32288.33 28323.10 24844.82 21793.71 I = Sum H Net Present Value 131921.2Related Questions
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