Problem 9-29 Project Evaluation [LO 2] 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 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 calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the IRR? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Problem 9-29 Project Evaluation [LO 2] 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 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 calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the IRR? Note: 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
Problem 1PS
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![Problem 9-29 Project Evaluation [LO 2]
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
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. NPV
b. IRR
a. What is the NPV of the project?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
b. What is the IRR?
Note: 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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Transcribed Image Text:Problem 9-29 Project Evaluation [LO 2]
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
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. NPV
b. IRR
a. What is the NPV of the project?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
b. What is the IRR?
Note: 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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