University Of North Carolina At Charlotte Operations And Supply Chain Management Assignment Help - Matheson Electronics

Question - Matheson Electronics has just developed a new electronic device which, when mounted on an
automobile, will tell the driver how many miles the automobile is traveling per gallon of gasoline. The
company is anxious to begin production of the new device. To this end, marketing and cost studies
have been made to determine probable costs and market potential. These studies have provided the
following information:
(a) New equipment would have to be acquired to produce the device. The equipment would cost
$315,000 and have a 12-year useful life. After 12 years, it would have a salvage value of about
$15,000.
(b) Sales in units over the next 12 years are projected to be as follows:

(c)Production and sales of the device would require work ...Read More ing capital of $60,000 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 $15 per unit.
(e) Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line depreciation on
the equipment would total $135,000 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:

(g) The company’s required rate of return is 14%.
Required:
(Ignore income taxes.)
1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from
sale of the device for each year over the next 12 years.
2. Using the data computed in (1) above and other data provided in the problem, determine the net
present value of the proposed investment. Would you recommend that Matheson accept the device
as a newproduct? ...Read Less

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