Please solve 2(b) Secure Homes is pondering an opportunity to produce and sell a new smart home monitoring system that can bemanaged remotely using a smartphone app. The company has gathered the following data on probable costs andmarket potential:a. New equipment would have to be acquired to produce the monitoring system. The equipment would cost$310,000 and be usable for 12 years. After 12 years, it would have a salvage value equal to 10% of the originalcost.b. Production and sales of the monitoring system would require a working capital investment of $124,000 to financeaccounts receivable, inventories, and day-to-day cash needs. This working capital would be released for useelsewhere by the company after 12 years.C. An extensive marketing study projects sales in units over the next 12 years as follows:Sales inYear(s)Units14,1007,280210,15012,02034-12d. The monitoring systems would sell for $131 each; variable costs for production, administration, and sales would be$75 per unit.e. To gain entry into the market, the company would have to advertise heavily in the early years of sales. Theadvertising program follows:Amount ofYear (s) Advertising$231,000168,000122,0001-24-12f. Other fixed costs for salaries, insurance, maintenance, and straight-line depreciation on equipment would total$353,000 per year. (Depreciation is based on cost less salvage value.)g. The company's required rate of return is 12%.(Ignore income taxes.) Required:1. Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of themonitoring systems for each year over the next 12 years. (Enter any cash outflows with a minus sign. Round yourintermediate and final answers to the nearest dollar amount.)The net cash inflow from sales of the device for each year would be:Year 1Year 2Year 3Year 4-12Sales in units4,1007,28010,15012,020Contribution marginLess fixed expenses:AdvertisingOther fixed expensesTotal fixed expensesNet cash inflow (outflow)$$$2$2-a. Using the data computed in requirement (1) above and other data provided in the problem, determine the netpresent value of the proposed investment. (Hint: Use Microsoft Excel to calculate the discount factor(s).) (Negativeamount should be indicated by a minus sign. Do not round intermediate calculations and PV factor. Round thefinal answers to the nearest whole dollar amount.)Net present value$2-b. Would you recommend that Secure Homes invest in the new product?YesO No

Net present value (NPV) refers to the concept of determining the current worth of future cash flows.

Answered: Please solve 2(b

Business

Accounting

Please solve 2(b

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1jM

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