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Mumful Toys Ltd. has developed a new toy developed for primary-aged old children. To help decide whether to proceed with manufacturing the toy, Mumful has collected the following information from its product development, accounting, and operations teams: 1) New equipment would have to be acquired to produce the toy. The equipment would cost $315,000 and have a six-year useful life. After six years, it would have a salvage value of about $15,000. 2) Sales in units over the next six years are projected to be as follows: Year Sales in Units 1 9,000 15,000 18,000 22,000 4 6 3) Production and sales of the toy would require working capital of $65,000 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. 4) The toy would sell for $35 each; variable costs for production, administration, and sales would be $15 per unit. 5) 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.) 6) To gain rapid entry into the market, the company would have to advertise heavily. The advertising program would be: Amount of Year Yearly Advertising 1-2 $170,000 150,000 110,000 7) The company's required rate of return is 14%. 46 Required: (a) Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the toy for each year over the next six years. (5 marks) (b) Using the data computed in (a) above and other data provided in the problem, determine the net present value of the proposed investment. Would you recommend that Mumful proceed with the toy as a new product? (4 marks)

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