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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 %.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 5MAD
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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: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 >
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
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
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