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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:

New equipment would have to be acquired to produce the device. The equipment would cost $$246,000$ and have a six$-$year useful life. After six years, it would have a salvage value of about $$24,000.$

Sales in units over the next six years are projected to be as follows:

Year Sales in Units

$114,000$

$219,000$

$321,000$

$4623,000$

Production and sales of the device would require working capital of $$57,000$ to finance accounts receivable, inventories, and day$-$to$-$day cash needs. This working capital would be released at the end of the project$$s life.

The devices would sell for $$40$ each; variable costs for production, administration, and sales would be $$25$ per unit.

Fixed costs for salaries, maintenance, property taxes, insurance, and straight$-$line depreciation on the equipment would total $$132,000$ per year. $($Depreciation is based on cost less salvage value.$)$

To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be:

Year Amount of Yearly Advertising

$12$ $ $133,000$

$3$ $ $66,000$

$46$ $ $56,000$

The company$$s required rate of return is $15\%.$

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