Answer each question as if you were a consultant hired by Matheson Electronics and are presenting to management as indicated in the case study.
Use outside sources when necessary BUT MAKE SURE YOU CITE THEM!
When giving a recommendation, back it up with numbers and show calculations.
This particular answer should be a management report that no more than two pages in length.
Solution 1:
Annual depreciation on new machine = (Cost - Salvage value) /
useful life = ($315,000 - $15,000) / 6 = $50,000
Computation of net cash inflow from sale of device | ||||
Particulars | Year 1 | Year 2 | Year 3 | Year 4-6 |
Sales in units | 9000 | 15000 | 18000 | 22000 |
Sales in dollar | $315,000.00 | $525,000.00 | $630,000.00 | $770,000.00 |
Variable expenses | $135,000.00 | $225,000.00 | $270,000.00 | $330,000.00 |
Contribution margin | $180,000.00 | $300,000.00 | $360,000.00 | $440,000.00 |
Fixed Expenses: | ||||
Salaries and other (Excluding depreciation) | $85,000.00 | $85,000.00 | $85,000.00 | $85,000.00 |
Advertising | $180,000.00 | $180,000.00 | $150,000.00 | $120,000.00 |
Total fixed expenses | $265,000.00 | $265,000.00 | $235,000.00 | $205,000.00 |
Net cash inflow (Outflow) | -$85,000.00 | $35,000.00 | $125,000.00 | $235,000.00 |
Solution 2:
Computation of Net Present Value - Matheson Electronics | |||||||
Particulars | Now | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
Cost of equipment | -$315,000 | ||||||
Working capital | -$60,000 | ||||||
Yearly net cash flows | -$85,000 | $35,000 | $125,000 | $235,000 | $235,000 | $235,000 | |
Release of working capital | $60,000 | ||||||
Salavage value of equipment | $15,000 | ||||||
Total cash flows | -$375,000 | -$85,000 | $35,000 | $125,000 | $235,000 | $235,000 | $310,000 |
PV Factor | 1.000 | 0.877 | 0.769 | 0.675 | 0.592 | 0.519 | 0.456 |
Present Value | -$375,000 | -$74,545 | $26,915 | $84,375 | $139,120 | $121,965 | $141,360 |
Net present value | $64,190 |
Matheson should accept the device as a new product.
Answer each question as if you were a consultant hired by Matheson Electronics and are presenting to management as indi...
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