Aria Acoustics, Inc., (AA) projects unit sales for a new seven-octave voice emulation implantas follows: Year Unit Sales 1 2 3 4 5 PROBLEM 2 Production of the implants will require $2,350,000 in net working capital to start and additional net working capital investments each year equal to 25 percent of the projected sales increase for the following year. Total fixed costs are $1,490.000 per year, variable production costs are $239 per unit, and the units are priced at $359 each. The equipment needed to begin production has an installed cost of $30,000,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. AAI is in the 40 percent marginal tax bracket and has a required return on all its projects of 16 percent. What are operating cash flows, change in net working capital, capital spending, and total cash flow for each year of the project? (A negative answer should be indicated by a minus sign. Leave no cells blank-be certain to enter "0" wherever required. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Year OCF Chang, e in NWC Capita 1 115,000 134,000 122,000 105,000 91,000 spendil ng Total cash flow 0 What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places., e.g., 32.16.) Net present value What is the IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal rate of return
Aria Acoustics, Inc., (AA) projects unit sales for a new seven-octave voice emulation implantas follows: Year Unit Sales 1 2 3 4 5 PROBLEM 2 Production of the implants will require $2,350,000 in net working capital to start and additional net working capital investments each year equal to 25 percent of the projected sales increase for the following year. Total fixed costs are $1,490.000 per year, variable production costs are $239 per unit, and the units are priced at $359 each. The equipment needed to begin production has an installed cost of $30,000,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. AAI is in the 40 percent marginal tax bracket and has a required return on all its projects of 16 percent. What are operating cash flows, change in net working capital, capital spending, and total cash flow for each year of the project? (A negative answer should be indicated by a minus sign. Leave no cells blank-be certain to enter "0" wherever required. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Year OCF Chang, e in NWC Capita 1 115,000 134,000 122,000 105,000 91,000 spendil ng Total cash flow 0 What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places., e.g., 32.16.) Net present value What is the IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal rate of return
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 19P
Related questions
Question
Transcribed Image Text:PROBLEM 2
fol Acoustics, Inc. (AA) projects unit sales for a new seven-octave voice emulation implantas
follows:
Year
1
2
3
4
5
Production of the implants will require $2,350,000 in net working capital to start and additional net
working capital investments each year equal to 25 percent of the projected sales increase for the
following year. Total fixed costs are $1,490,000 per year, variable production costs are $239 per unit,
and the units are priced at $359 each. The equipment needed to begin production has an installed
cost of $30,000,000. Because the implants are intended for professional singers, this equipment is
considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property.
In five years, this equipment can be sold for about 20 percent of its acquisition cost. AAI is in the 40
percent marginal tax bracket and has a required return on all its projects of 16 percent.
Unit Sales
115,000
134,000
122,000
105,000
91,000
What are operating cash flows, change in net working capital, capital spending, and total cash flow
for each year of the project? (A negative answer should be indicated by a minus sign. Leave no
cells blank-be certain to enter "0" wherever required. Do not round intermediate
calculations and round your answers to the nearest whole number, e.g., 32.)
0
Year
OCF
Chang
e in
NWC
Capita
I
spendil
ng
Total
cash
flow
What is the NPV of the project? (Do not round intermediate calculations and round your answer
to 2 decimal places., e.g., 32.16.)
Net present value
What is the IRR? (Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Internal rate of return.
%
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