Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows Table 6.3 Depreciation under Modified Accelerated Cost Recovery System (MACRS) Year Unit Sales 71,000 2 84,000 3 103,000 5 95,000 64,000 Recovery Period Class Year 1 3 Years .3333 5 Years 7 Years 10 Years 15 Years 20 Years .2000 1429 .1000 .0500 .03750 2 4445 .3200 .2449 .1800 .0950 .07219 3 .1481 1920 .1749 .1440 .0855 .06677 4 0741 .1152 1249 .1152 .0770 06177 5 .1152 .0893 0922 .0693 .05713 6 .0576 0892 .0737 0623 .05285 0893 .0655 .0590 .04888 0446 .0655 .0590 .04522 9 10 11 .0656 .0591 04462 .0655 .0590 04461 .0328 .0591 .04462 0590 .04461 .0591 04462 .0590 .04461 15 0591 .04462 .0295 04461 17 18 19 20 21 .04462 .04461 .04462 .04461 .02231 Production of the implants will require $2.3 million 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 $2.9 million per year, variable production costs are $285 per unit, and the units are priced at $410 each. The equipment needed to begin production has an installed cost of $14.8 million. 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 21 percent and the required return is 18 percent. MACRS schedule What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) NPV IRR 7 8 12 13 14 16 Depreciation is expressed as a percentage of the asset's initial cost. These schedules are based on IE assumes the purchase is made midyear
Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows Table 6.3 Depreciation under Modified Accelerated Cost Recovery System (MACRS) Year Unit Sales 71,000 2 84,000 3 103,000 5 95,000 64,000 Recovery Period Class Year 1 3 Years .3333 5 Years 7 Years 10 Years 15 Years 20 Years .2000 1429 .1000 .0500 .03750 2 4445 .3200 .2449 .1800 .0950 .07219 3 .1481 1920 .1749 .1440 .0855 .06677 4 0741 .1152 1249 .1152 .0770 06177 5 .1152 .0893 0922 .0693 .05713 6 .0576 0892 .0737 0623 .05285 0893 .0655 .0590 .04888 0446 .0655 .0590 .04522 9 10 11 .0656 .0591 04462 .0655 .0590 04461 .0328 .0591 .04462 0590 .04461 .0591 04462 .0590 .04461 15 0591 .04462 .0295 04461 17 18 19 20 21 .04462 .04461 .04462 .04461 .02231 Production of the implants will require $2.3 million 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 $2.9 million per year, variable production costs are $285 per unit, and the units are priced at $410 each. The equipment needed to begin production has an installed cost of $14.8 million. 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 21 percent and the required return is 18 percent. MACRS schedule What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) NPV IRR 7 8 12 13 14 16 Depreciation is expressed as a percentage of the asset's initial cost. These schedules are based on IE assumes the purchase is made midyear
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
Problem 1PS
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Transcribed Image Text:Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice
emulation implant as follows
Table 6.3 Depreciation under Modified Accelerated Cost Recovery System (MACRS)
Year
Unit Sales
71,000
2
84,000
3
103,000
5
95,000
64,000
Recovery Period Class
Year
1
3 Years
.3333
5 Years
7 Years
10 Years
15 Years
20 Years
.2000
1429
.1000
.0500
.03750
2
4445
.3200
.2449
.1800
.0950
.07219
3
.1481
1920
.1749
.1440
.0855
.06677
4
0741
.1152
1249
.1152
.0770
06177
5
.1152
.0893
0922
.0693
.05713
6
.0576
0892
.0737
0623
.05285
0893
.0655
.0590
.04888
0446
.0655
.0590
.04522
9
10
11
.0656
.0591
04462
.0655
.0590
04461
.0328
.0591
.04462
0590
.04461
.0591
04462
.0590
.04461
15
0591
.04462
.0295
04461
17
18
19
20
21
.04462
.04461
.04462
.04461
.02231
Production of the implants will require $2.3 million 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 $2.9 million per year,
variable production costs are $285 per unit, and the units are priced at $410 each. The
equipment needed to begin production has an installed cost of $14.8 million. 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 21
percent and the required return is 18 percent. MACRS schedule
What is the NPV of the project? (Do not round intermediate calculations and enter your
answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,
1,234,567.89.)
What is the IRR of the project? (Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
NPV
IRR
7
8
12
13
14
16
Depreciation is expressed as a percentage of the asset's initial cost. These schedules are based on IE
assumes the purchase is made midyear
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