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 $258,000 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: Year Sales in Units 15,000 20,000 22,000 24,000 1 2 3 4-6 c. Production and sales of the device would require working capital of $58,000 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 $45 each; variable costs for production, administration, and sales would be $30 per unit e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $147,000 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 costs would be: Year 1-2 3 4-6 Amount of Yearly Advertising $ 128,000 $ 67,000 $ 57,000 g. The company's required rate of return is 16 %.
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 $258,000 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: Year Sales in Units 15,000 20,000 22,000 24,000 1 2 3 4-6 c. Production and sales of the device would require working capital of $58,000 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 $45 each; variable costs for production, administration, and sales would be $30 per unit e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total $147,000 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 costs would be: Year 1-2 3 4-6 Amount of Yearly Advertising $ 128,000 $ 67,000 $ 57,000 g. The company's required rate of return is 16 %.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:f. To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be:
Year
1-2
3
4-6
Amount of Yearly
Advertising
g. The company's required rate of return is 16%.
$ 128,000
$ 67,000
$ 57,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the net cash inflow (incremental contribution margin minus incremental fixed expenses) anticipated from sale of the
for each year over the next six years.
2-a. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the propc
investment.
2-b. Would you recommend that Matheson accept the device as a new product?
Complete this question by entering your answers in the tabs below.
Req 1
ONO
Req 2A
Req 28
Would you recommend that Matheson accept the device as a new product?
Yes
< Req 2A
Req 28 >
Transcribed Image Text: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 $258,000 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:
Year
1
2
3
4-6
Sales in Units
15,000
20,000
22,000
24,000
c. Production and sales of the device would require working capital of $58,000 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 $45 each; variable costs for production, administration, and sales would be $30 per unit.
e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the equipment would total
$147,000 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 costs would be:
Year
1-2
3
4-6
Amount of Yearly
Advertising
$ 128,000
$ 67,000
$ 57,000
g. The company's required rate of return is 16%.
Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the net cash inflow (incremental contribution margin minus incremental fixed expenses) anticipated from sale of the device
for each year over the next six years,
2-a. Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed
investment
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education