Matheson Electronics has just developed a new electronic devicethat it believes will have broad market appeal. The company hasperformed marketing and cost studies that revealed the followinginformation:

1. New equipment would have to be acquired to produce the device.The equipment would cost $474,000 and have a six-year useful life.After six years, it would have a salvage value of about$24,000.
2. Sales in units over the next six years are projected to be asfollows:

Year	Sales in Units
1	18,000
2	23,000
3	25,000
4–6	27,000

3. Production and sales of the device would requireworking capital of $62,000 to finance accounts receivable,inventories, and day-to-day cash needs. This working capital wouldbe released at the end of the project’s life.
4. The devices would sell for $30 each; variable costsfor production, administration, and sales would be $15 perunit.
5. Fixed costs for salaries, maintenance, propertytaxes, insurance, and straight-line depreciation on the equipmentwould total $144,000 per year. (Depreciation is based on cost lesssalvage value.)
6. To gain rapid entry into the market, the companywould have to advertise heavily. The advertising costs wouldbe:

Year	Amount of Yearly Advertising
1–2	$	223,000
3	$	71,000
4–6	$	61,000

7. The company’s required rate of return is 18%.