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a. What is the NPV of the project?

a. What is the NPV of the project?

Essentials Of Investments
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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Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven- octave voice emulation implant as follows: Year 1 SAWNP 2 3 4 5 Unit Sales 76,000 89,000 108,750 101,500 68,800 Production of the implants will require $2,250,000 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 $4,700,000 per year, variable production costs are $270 per unit, and the units are priced at $420 each. The equipment needed to begin production has an installed cost of $19,500,000. 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. The tax rate is 25 percent and the required return is 15 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
Transcribed Image Text:Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven- octave voice emulation implant as follows: Year 1 SAWNP 2 3 4 5 Unit Sales 76,000 89,000 108,750 101,500 68,800 Production of the implants will require $2,250,000 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 $4,700,000 per year, variable production costs are $270 per unit, and the units are priced at $420 each. The equipment needed to begin production has an installed cost of $19,500,000. 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. The tax rate is 25 percent and the required return is 15 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
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