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 $180,000 and have a six-year useful life.After six years, it would have a salvage value of about$18,000.
2. Sales in units over the next six years are projected to be asfollows:

Year	Sales in Units
1	9,000
2	14,000
3	16,000
4–6	18,000

3. Production and sales of the device would requireworking capital of $50,000 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 $40 each; variable costsfor production, administration, and sales would be $25 perunit.
5. Fixed costs for salaries, maintenance, propertytaxes, insurance, and straight-line depreciation on the equipmentwould total $125,000 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	$	48,000
3	$	59,000
4–6	$	49,000

7. The company’s required rate of return is 13%.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determinethe appropriate discount factor(s) using tables.

Required:

1. Compute the net cash inflow (incremental contribution marginminus incremental fixed expenses) anticipated from sale of thedevice for each year over the next six years.

2-a. Using the data computed in (1) above and other dataprovided in the problem, determine the net present value of theproposed investment.

2-b. Would you recommend that Matheson accept the device as anew product?