Matheson Electronics has just developed a new electronic device that it believes
ID: 2596954 • 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 $138,000 and have a six-year useful life. After six years, it would have a salvage value of about $24,000 b. Sales in units over the next six years are projected to be as follows Sales in Units 2 3 4-6 7,000 12,000 14,000 16,000 www.idownloadblog.com c. Production and sales of the device would require working capital of $46,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of d. The devices would sell for $55 each; variable costs for production, administration, and sales would be e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the f. To gain rapid entry into the market, the company would have to advertise heavily. The advertising the project's life $35 per unit equipment would total $149,000 per year. (Depreciation is based on cost less salvage value.) program would be Amount of Yearly Advertising 75,000 55,000 $ 45,000 Year 3 4-6 g. The company's required rate of return is 13%Explanation / Answer
statement of net cash flow
year
1
2
3
4
5
6
sales
7000
12000
14000
16000
16000
16000
sales in dollars
385000
660000
770000
880000
880000
880000
variable expenses = sales in units*variable cost per unit
245000
420000
490000
560000
560000
560000
contribution margin
140000
240000
280000
320000
320000
320000
Less Fixed expenses
149000
149000
149000
149000
149000
149000
advertising expenses
75000
75000
55000
45000
45000
45000
total fixed expenses
224000
224000
204000
194000
194000
194000
net cash inflow
-84000
16000
76000
126000
126000
126000
statement of net cash flow
year
1
2
3
4
5
6
sales
7000
12000
14000
16000
16000
16000
sales in dollars
385000
660000
770000
880000
880000
880000
variable expenses = sales in units*variable cost per unit
245000
420000
490000
560000
560000
560000
contribution margin
140000
240000
280000
320000
320000
320000
Less Fixed expenses
149000
149000
149000
149000
149000
149000
advertising expenses
75000
75000
55000
45000
45000
45000
total fixed expenses
224000
224000
204000
194000
194000
194000
net cash inflow
-84000
16000
76000
126000
126000
126000