TABLE 8.3Depreciation under ModifiedAccelerated Cost RecoverySystem (MACRS)YEAR1234 in 600081011121314151627298&17181920213 YEARS3333444514810741RECOVERY PERIOD CLASS7 YEARS5 YEARS2000320019201152115205761429244917491249089308920893044610 YEARS1000180014401152092207370655065506560655032815 YEARS050009500855077006930623059005900591059005910590059105900591029520 YEARS037500721906677061770571305285048880452204462044610446204461044620446104462044610446204461044620446102231Depreciation is expressed as a percent of the asset's cost. These schedules are based on the IRS publication 946 How to Depreciate Propertyand other details on depreciation are prasanted later in the chapter. Note that five-year depreciation actually cames over six years because theIRS assumos purchase is made in midyear Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulationimplant as follows:Year Unit Sales88,000101,000H115,000110,00091,00012345Production of the implants will require $1,670,000 in net working capital to start andadditional net working capital investments each year equal to 10 percent of theprojected sales increase for the following year. Total fixed costs are $1,570,000 per year,variable production costs are $300 per unit, and the units are priced at $415 each. Theequipment needed to begin production has an installed cost of $21,700,000. Becausethe implants are intended for professional singers, this equipment is consideredindustrial machinery and thus qualifies as seven-year MACRS property. In five years, thisequipment can be sold for about 15 percent of its acquisition cost. The tax rate is 22percent and the required return on the project is 17 percent. Refer to Table 8.3.a. What is the NPV of the project? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)b. What is the IRR? (Do not round intermediate calculations and enter your answer asa percent rounded to 2 decimal places, e.g., 32.16.)NPVa.b. IRR%

NPV It is a capital budgeting tool to decide on whether the capital project should be accepted or…

Answered: Aria Acoustics, Inc. (AAI), projects…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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Aguilera Acoustics, Inc. (AAI), projects unit sales for a newseven-octave voice emulation implant as follows: Year Unit Sales 1 8300 2 9200 3 10400 4 9800 5 8400 Production of the implants will require GH¢ 150,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project’s life. Total fixed costs are GH¢ 240,000 per year, variable production costs are GH¢ 190 per unit, and the units are priced at GH¢ 345 each. The equipment needed to begin production has an installed cost of GH¢ 2,300,000. Because the implants are intended for professional singers, this equipment depreciated using the straight-line basis. In five years,…
Aria Acoustics, Incorporated (AAI), projects unit sales for a new 7-octave voice emulation implant as follows: Year Unit Sales 1 74,400 2 79,800 3 85,400 4 82,700 5 69,500 Production of the implants will require $1,480,000 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 $3,800,000 per year, variable production costs are $143 per unit, and the units are priced at $325 each. The equipment needed to begin production has an installed cost of $18,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as 7-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 23 percent and the required return is 17 percent. (MACRS schedule) a. What is the NPV of the project? (Do…
Aria Acoustics, Incorporated (AA), projects unit sales for a new 7-octave voice emulation implant as follows: Year Unit Sales 1 2 3 4 5 74,400 79,800 85,400 82,700 69,500 Production of the implants will require $1,480,000 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 $3,800,000 per year, variable production costs are $143 per unit, and the units are priced at $325 each. The equipment needed to begin production has an installed cost of $18,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as 7-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 23 percent and the required return is 17 percent. (MACRS schedule) a. NPV b. IRR a. What is the NPV of the project? (Do not round intermediate…
Aday Acoustics, Inc., projects unit sales for a new 7-octave voice emulation implant as follows: Year Unit Sales 1 73,800 2 79,200 3 84,600 4 82,100 5 68,700 Production of the implants will require $1,460,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $3,700,000 per year, variable production costs are $141 per unit, and the units are priced at $323 each. The equipment needed to begin production has an installed cost of $18,300,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as 7-year MACRS property. In five years, this equipment can be sold for about 25 percent of its acquisition cost. The company is in the 21 percent marginal tax bracket and has a required return on all its projects of 15…
Aria Acoustics, Incorporated (AAI), projects unit sales for a new 7-octave voice emulation implant as follows: Year Unit Sales 1 74,400 2345 79,800 85,400 82,700 69,500 Production of the implants will require $1,480,000 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 $3,800,000 per year, variable production costs are $143 per unit, and the units are priced at $325 each. The equipment needed to begin production has an installed cost of $18,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as 7-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 23 percent and the required return is 17 percent. (MACRS schedule) a. What is the NPV of the project? (Do not round intermediate calculations and…
Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year 12345 Unit Sales 73,400 86,400 105,500 97,600 67,500 Production of the implants will require $1,600,000 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 $3,400,000 per year, variable production costs are $257 per unit, and the units are priced at $381 each. The equipment needed to begin production has an installed cost of $16,900,000. 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 22 percent and the required return is 14 percent. MACRS schedule a. What is the NPV of the project? Note: Do not round intermediate…
Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year 1 2 3 4 5 Unit Sales 74, 000 87, 000 106, 250 98, 500 67, 800 Production of the implants will require $1,750,000 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 $3,700,000 per year, variable production costs are $260 per unit, and the units are priced at $390 each. The equipment needed to begin production has an installed cost of $17,500,000. 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 is 17 percent. MACRS schedule a. What is the NPV of the project? Note: Do not round intermediate…
Aria Acoustics, Incorporated (AAL), projects unit sales for a new seven-octave voice emulation implant as follows: Year 1 2 3 4 5 Unit Sales 74, 000 87, 000 106, 250 98, 500 67, 800 Production of the implants will require $1,750,000 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 $3,700,000 per year, variable production costs are $260 per unit, and the units are priced at $390 each. The equipment needed to begin production has an installed cost of $17,500,000. 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 is 17 percent. MACRS schedule a. What is the NPV of the project? Note: Do not round intermediate…
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Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 86,000 2345 99,000 113,000 108,000 89,000 Production of the implants will require $1,650,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $1,550,000 per year, variable production costs are $290 per unit, and the units are priced at $405 each. The equipment needed to begin production has an installed cost of $21,500,000. 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 25 percent of its acquisition cost. AAI is in the 34 percent marginal tax bracket and has a required return on all its projects of 19 percent. (MACRS schedule) What is the NPV of the project? (Do not…
Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows: Year Unit Sales 1 109,000 2 125,000 3 136,000 4 158,000 5 97,000 Production of the implants will require $812,000 in net working capital to start and additional net working capital investments each year equal to 20% of the projected sales increase for the following year. (Because sales are expected to fall in Year 5, there is no NWC cash flow occurring for Year 4.) Total fixed costs are $194,000 per year, variable production costs are $290 per unit, and the units are priced at $400 each. The equipment needed to begin production has an installed cost of $21.5 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus falls into Class 8 for tax purposes (20%). In five years, this equipment can be sold for about 25% of its acquisition cost. AIY is in the 40% marginal tax bracket and has a required…
Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows: Year Unit Sales 1 101,000 2 115,000 3 125,000 4 145,000 5 90,000 Production of the implants will require $753,000 in net working capital to start and additional net working capital investments each year equal to 15% of the projected sales increase for the following year. (Because sales are expected to fall in Year 5, there is no NWC cash flow occurring for Year 4.) Total fixed costs are $177,000 per year, variable production costs are $309 per unit, and the units are priced at $360 each. The equipment needed to begin production has an installed cost of $10.0 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus falls into Class 8 for tax purposes (20%). In five years, this equipment can be sold for about 20% of its acquisition cost. AIY is in the 40% marginal tax bracket and has a required…

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