Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 76,000 2345 89,000 103,000 98,000 79,000 Production of the implants will require $1,550,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales increase for the following year. Total fixed costs are $1,450,000 per year, variable production costs are $240 per unit, and the units are priced at $355 each. The equipment needed to begin production has an installed cost of $20,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 25 percent and the required return on the project is 18 percent. Refer to Table 8.3. a. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. 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.)
Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 76,000 2345 89,000 103,000 98,000 79,000 Production of the implants will require $1,550,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales increase for the following year. Total fixed costs are $1,450,000 per year, variable production costs are $240 per unit, and the units are priced at $355 each. The equipment needed to begin production has an installed cost of $20,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 25 percent and the required return on the project is 18 percent. Refer to Table 8.3. a. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. 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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation
implant as follows:
Year
Unit Sales
1
76,000
2345
89,000
103,000
98,000
79,000
Production of the implants will require $1,550,000 in net working capital to start and
additional net working capital investments each year equal to 15 percent of the
projected sales increase for the following year. Total fixed costs are $1,450,000 per year,
variable production costs are $240 per unit, and the units are priced at $355 each. The
equipment needed to begin production has an installed cost of $20,500,000. Because
the implants are intended for professional singers, this equipment is considered
industrial machinery and thus qualifies as seven-year MACRS property. In five years, this
equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 25
percent and the required return on the project is 18 percent. Refer to Table 8.3.
a. What is the NPV of the project? (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
b. 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.)
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