volue I1 6.00 points Case 11-32 Net Present Value Analysis of a New Product [LO1
ID: 2431959 • Letter: V
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volue I1 6.00 points Case 11-32 Net Present Value Analysis of a New Product [LO11-2] Matheson Electronics has just developed a new electronic device that beleves wil 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 $216,000 and have a sb-year useful life. After six years, it would have a salvage value of about $12,000 b. Sales in units over the next stx years are projected to be as follows 10,000 15,000 17.000 19,000 2 4-6 C Production and sales of the device would require working capital of $53,000 to finance accounts d The devices would sell for $55 each, variable costs for production, administration, and sales wouild be e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on the T To gain rapid entry into the market, the company would have to advertise heavily. The advertising receivable, inventories, and day-to-day cash needs. This working capital would be released at the end of the projects life $40 per unt equipment wwould total $120,000 per year (Depreciation is based on cost less salvage value) program would be Amount of Yearly 1-2 S 82,000 62.000 5 52,000 4-6 g The company's required rate of return is 14% Click here to view Exhibit 118-1 and Exhibit 1182 to determine the appropriate discount factoris) using tables Required: Compute the net cash inflow (cash receipts less yeany cash operating expenses) antcipated from sale Type here to searchExplanation / Answer
Year
1
2
3
4
5
6
sales in unit
10000
15000
17000
19000
19000
19000
sales in dollar
550000
825000
935000
1045000
1045000
1045000
variable cost
400000
600000
680000
760000
760000
760000
contribution margin
150000
225000
255000
285000
285000
285000
fixed cost - depreciation
86000
86000
86000
86000
86000
86000
advertising
82000
82000
52000
62000
62000
62000
net cash flow
-18000
57000
117000
137000
137000
137000
0
1
2
3
4
5
6
cost of equipment
-216000
working capital
-53000
yearly net cash inflow
-18000
57000
117000
137000
137000
137000
release of working capital
53000
salvage value of equipment
12000
total cash flow
-269000
-18000
57000
117000
137000
137000
202000
present value factor at 14% =1/(1+r)^n r= 14%
1
0.877193
0.769468
0.674972
0.59208
0.519369
0.455587
present value of cash flow
-269000
-15789.5
43859.65
78971.67
81115
71153.51
92028.48
Net present value = sum of present value of cash flow
82338.83
Year
1
2
3
4
5
6
sales in unit
10000
15000
17000
19000
19000
19000
sales in dollar
550000
825000
935000
1045000
1045000
1045000
variable cost
400000
600000
680000
760000
760000
760000
contribution margin
150000
225000
255000
285000
285000
285000
fixed cost - depreciation
86000
86000
86000
86000
86000
86000
advertising
82000
82000
52000
62000
62000
62000
net cash flow
-18000
57000
117000
137000
137000
137000
0
1
2
3
4
5
6
cost of equipment
-216000
working capital
-53000
yearly net cash inflow
-18000
57000
117000
137000
137000
137000
release of working capital
53000
salvage value of equipment
12000
total cash flow
-269000
-18000
57000
117000
137000
137000
202000
present value factor at 14% =1/(1+r)^n r= 14%
1
0.877193
0.769468
0.674972
0.59208
0.519369
0.455587
present value of cash flow
-269000
-15789.5
43859.65
78971.67
81115
71153.51
92028.48
Net present value = sum of present value of cash flow
82338.83
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