Question

I need help for answer 2, all answers in the #1 are good.

Clarion Company is considering an opportunity to produce and sell a revolutionary new smoke detector for homes. To determine whether this would be a profitable venture, the company has gathered the following data on probable costs and market potential: a. New equipment would have to be acquired to produce the smoke detector. The equipment would cost $310,000 and be usable for 15 years. After 15 years, it would have a salvage value equal to 10% of the original cost. b. Production and sales of the smoke detector would require a working capital investment of $61,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released for use elsewhere after 15 years. c. An extensive marketing study projects sales in units over the next 15 years as follows: Year(s) Sales in Units 11,000 14,000 19,000 20,000 N سا 4–15 d. The smoke detectors would sell for $55 each; variable costs for production, administration, and sales would be $40 per unit. e 1 the market, the company would dortico CONTPally would neve lo advertisen LIE ofca ears O Sales, me davertising program les The adv follows: Amount of Year(s) Advertising 1–2 $90,000 70,000 4–15 60,000 3

Answer 1

Year 0 Cash Flow
Cost of equipment		310000
Working Capital		61000
Total		371000
Salvage Value = 310000*10% =31000
Net Present Value - Project A
Discount Rate		11%
Year	Particular	Cashflow	Discounting Factor @6%	Discounted Cash Flow
a	b	c	d	e=d*c
0	Initial Investment	$ -3,71,000	1.000	$                 -3,71,000.00
1	Annual Cash Inflows	$ -1,21,400	0.901	$                 -1,09,369.37
2	Annual Cash Inflows	$     -76,400	0.812	$                     -62,007.95
3	Annual Cash Inflows	$      18,600	0.731	$                       13,600.16
4	Annual Cash Inflows	$      43,600	0.659	$                       28,720.67
5	Annual Cash Inflows	$      43,600	0.593	$                       25,874.48
6	Annual Cash Inflows	$      43,600	0.535	$                       23,310.34
7	Annual Cash Inflows	$      43,600	0.482	$                       21,000.31
8	Annual Cash Inflows	$      43,600	0.434	$                       18,919.20
9	Annual Cash Inflows	$      43,600	0.391	$                       17,044.32
10	Annual Cash Inflows	$      43,600	0.352	$                       15,355.24
11	Annual Cash Inflows	$      43,600	0.317	$                       13,833.55
12	Annual Cash Inflows	$      43,600	0.286	$                       12,462.66
13	Annual Cash Inflows	$      43,600	0.258	$                       11,227.62
14	Annual Cash Inflows	$      43,600	0.232	$                       10,114.97
15	Annual Cash Inflows	$      43,600	0.209	$                         9,112.59
15	Salvage value	$      31,000	0.209	$                         6,479.13
15	Release Of Working Capital	$      61,000	0.209	$                       12,749.27
	NPV			$                       -3,02,573
	Therefore NPV =-$302573
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