Matheson Electronics has just developed a new electronic device that it believes
ID: 2592096 • Letter: M
Question
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 $240,000 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: Sales in Units 13,000 18,000 20,000 22.000 Year 4-6 c. Production and sales of the device would require working capitalof $56,000 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 $35 each; variable costs for production, administration, and sales would be $20 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 advertising program would be: Amount of Yearly Advertising $85,000 $65,000 55,000 Year 1-2 4-6 g. The company's required rate of return is 17%. Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor(s) using tables.Explanation / Answer
1. Statment showing computation of net cashflow of anticipated sale of the device each year.
2a. Net Present value of the project invested.
2B. NO Company sholu not accept the device as new product it will have nagative NPV of $ 53,840.
Year 1 Year 2 Year 3 Year 4-6 Sales in Units (A) 13000 18000 20000 22000 Sales in Dollars per unit (B) $ 35 $ 35 $ 35 $ 35 Variable Cost Per Unit (C) $ 20 $ 20 $ 20 $ 20 Contribution Per unit (D= B-C) $ 15 $ 15 $ 15 $ 15 Contibution in dollars (E=A*D) $ 195,000 $ 270,000 $ 300,000 $ 330,000 Fixed Expenses: Saleries and Depreciation etc (F) $ 151,000 $ 151,000 $ 151,000 $ 151,000 Advetisement Expenses (G) $ 85,000 $ 85,000 $ 65,000 $ 55,000 Total Fixed Expenses (H=F+G) $ 236,000 $ 236,000 $ 216,000 $ 206,000 Net Vash Inflow or (Out Flow) (I = E-H) ($ 41,000) $ 34,000 $ 84,000 $ 124,000