Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 2345 74,200 87,200 106,500 98,800 5 67,900 Production of the implants will require $1,800,000 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 $3,800,000 per year, variable production costs are $261 per unit, and the units are priced at $393 each. The equipment needed to begin production has an installed cost of $17,700,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. (MACRS schedule) In five years, this equipment can be sold for about 25 percent of its acquisition cost. The tax rate is 21 percent the required return is 18 percent. 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.) a. NPV S b. IRR Answer is not complete. 3,073,582.67 x %
Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 2345 74,200 87,200 106,500 98,800 5 67,900 Production of the implants will require $1,800,000 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 $3,800,000 per year, variable production costs are $261 per unit, and the units are priced at $393 each. The equipment needed to begin production has an installed cost of $17,700,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. (MACRS schedule) In five years, this equipment can be sold for about 25 percent of its acquisition cost. The tax rate is 21 percent the required return is 18 percent. 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.) a. NPV S b. IRR Answer is not complete. 3,073,582.67 x %
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 19P
Related questions
Question
Raghubhai
Transcribed Image Text:Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice
emulation implant as follows:
Year Unit Sales
1
2345
74,200
87,200
106,500
98,800
5 67,900
Production of the implants will require $1,800,000 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 $3,800,000 per year,
variable production costs are $261 per unit, and the units are priced at $393 each. The
equipment needed to begin production has an installed cost of $17,700,000. Because
the implants are intended for professional singers, this equipment is considered
industrial machinery and thus qualifies as seven-year MACRS property. (MACRS
schedule) In five years, this equipment can be sold for about 25 percent of its acquisition
cost. The tax rate is 21 percent the required return is 18 percent.
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.)
a. NPV
S
b. IRR
Answer is not complete.
3,073,582.67 x
%
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