instructions Ihelo 25.00 polnts Matheson Electronics has just developed a new el
ID: 2508527 • Letter: I
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instructions Ihelo 25.00 polnts Matheson Electronics has just developed a new electronis device that It believes will have broed markat appeel. The company has perforined marketing and cost studies that revealed the following informstion: a. New equipment would have to be acquired to produce the device. The equipment would cost $486,000 and have a sb-year useful fe. Ater six years, it would have a salvage value of abaut $24,000. b. Sales in units over the next stk years sre projected to be as follows: Yeer Sales in Units 23.000 25,000 27,000 4-6 c. Production and sales of the device would require working capital of $83,000 to finance accounts receivable, inventorias, and day-to-day cash needs. This working capital would be released at the end of the projects life. d. The devices would sell for $35 each; variable costs for production, administration, and sales would be $20 per unit e. Fixed costs for salaries, maintenance, property taxes, insurance, and straighl-line depreciation on the equipment would total S159,000 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 advertising program would he: Amount af Yearly Advertising $$2.000 $72,000 $62.000 Year 1-2 4-6 g. The company's required rate of return is 18%. Click here to view ExhibABE-1 and ExhibiL88-2·to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net cash infiow (cash receipts less yearly cash operating expenses) anticipated from sale of the device for each year over the next sb years Year 1 Year 2 Year 3 Year 4-6 27,000 Sales in units Sales in dollars Variable expenses Cantribution margir 18,000 23,000 25,000 Fixed expenses: Salaries and ather Advertising Total fixed expenses Net cash iniflow foutlow 2-a. Using the data computed in (1) above and other data provikded in the problerm, determine the net present value of the proposed investment. (Any cash outflows should be Indicated by a minus sign. Round discount factorfs) to 3 decimal places.) Now Cost of equipment Working capital Yearly net cash flows Release of working cspital Salvage value of equipment Tolal cash flows Discount factor (18%) Present value Nat present value 2-b. Would you recommend that Matheson accept the device as a new product? NoExplanation / Answer
Part 1 – Net Cash Inflow
Year 1
Year 2
Year 3
Year 4-6
Sales in Units
18000
23000
25000
27000
Sales in dollars
$630,000
$805,000
$875,000
$945,000
Variable expenses
360000
460000
500000
540000
Contribution Margin
$270,000
$345,000
$375,000
$405,000
Fixed Expenses:
Salaries and Other
159000
159000
159000
159000
Advertising
92000
92000
72000
62000
Total Fixed Expenses
251000
251000
231000
221000
Net Cash Inflow (outflow)
$19,000
$94,000
$144,000
$184,000
Part 2a --- Net Present Value
Now
1
2
3
4
5
6
Cost of Equipment
($486,000)
Working Capital
($63,000)
Yearly Net Cash Flows
$19,000
$94,000
$144,000
$184,000
$184,000
$184,000
Release of Working Capital
$63,000
Salvage Value of Equipment
$24,000
Total Cash Flows
($549,000)
$19,000
$94,000
$144,000
$184,000
$184,000
$271,000
Discount factor (18%)
1
0.847
0.718
0.608
0.515
0.436
0.369
Present Value
($549,000)
$16,093
$67,492
$87,552
$94,760
$80,224
$99,999
Net Present Value
-$102,880
Part 2b – No
Since The Net Present Value is negative, we recommend to NOT ACCEPT the device as a new product.
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Year 1
Year 2
Year 3
Year 4-6
Sales in Units
18000
23000
25000
27000
Sales in dollars
$630,000
$805,000
$875,000
$945,000
Variable expenses
360000
460000
500000
540000
Contribution Margin
$270,000
$345,000
$375,000
$405,000
Fixed Expenses:
Salaries and Other
159000
159000
159000
159000
Advertising
92000
92000
72000
62000
Total Fixed Expenses
251000
251000
231000
221000
Net Cash Inflow (outflow)
$19,000
$94,000
$144,000
$184,000
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