Aguilera Acoustics, Inc. (AAI) projects unit sales for a new seven-octave voice emulation implant as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Unit sales 81,000.00 94,000.00 108,000.00 103,000.00 84,000.00 Production of the implants will require $1,600,000 investment in working capital. The units are priced at $380 each, cost of goods sold (COGS) is $265 per unit, and selling, general and administration (SGA) expenses are $1,500,000 per year. The equipment needed to begin production has an installed cost of $21,000,000 and will be depreciated straight-line to zero. In five years, this equipment can be sold for about 10% of its original cost. AAI is in the 35 percent marginal tax bracket and has a required return or cost of capital on all its projects of 18 percent. Based on these preliminary project estimates: a) What is the project's NPV? b) What is the project's IRR? c) What is the project's MIRR? Aguilera Acoustics, Inc. (AAI) projects unit sales for a new seven-octave voice emulation implant as follows:Unit salesYear 181,000.00Year 294,000.00Year 3108,000.00Year 4103,000.00Year 584,000.00Production of the implants will require $1,600,000 investment in working capital. The units are priced at $380 each, cost of goods sold (COGS) is $265 perunit, and selling, general and administration (SGA) expenses are $1,500,000 per year. The equipment needed to begin production has an installed cost of$21,000,000 and will be depreciated straight-line to zero. In five years, this equipment can be sold for about 10% of its original cost. AAI is in the 35percent marginal tax bracket and has a required return or cost of capital on all its projects of 18 percent. Based on these preliminary project estimates:a) What is the project's NPV?b) What is the project's IRR?c) What is the project's MIRR?

Introduction: NPV is defined as the sum of the present values of all future cash inflows less the…

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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 19P

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Aguilera Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year 1 2 3 4 5 Unit Sales 100.000 125.000 135.000 145.000 95.000 Production of the implants will require $1,600,000 in net working capital to start and thereafter additional net working capital investments each year equal to 15 percent of the projected sales increase for the following year. Total fixed costs are $1,100,000 per year, variable production costs are $270 per unit, and the units are priced at $400 each. The equipment needed to begin production has an installed cost of $32,000,000. This could be depreciated for tax purposes straight-line over 8 years. However, AAI expects to terminate the project at the end of five years and this equipment can be sold for about 40 percent of its acquisition cost. AAI is in the 25 percent marginal tax bracket and has a required return on all its projects of 10 percent. Based on these preliminary project estimates, what is the…
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…
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Aguilera Acoustics, Inc. (AAI) projects unit sales for a new seven-octave voice emulation implant as follows:

	Year 1	Year 2	Year 3	Year 4	Year 5
Unit sales	81,000.00	94,000.00	108,000.00	103,000.00	84,000.00

Production of the implants will require $1,600,000 investment in working capital. The units are priced at $380 each, cost of goods sold (COGS) is $265 per unit, and selling, general and administration (SGA) expenses are $1,500,000 per year. The equipment needed to begin production has an installed cost of $21,000,000 and will be depreciated straight-line to zero. In five years, this equipment can be sold for about 10% of its original cost. AAI is in the 35 percent marginal tax bracket and has a required return or cost of capital on all its projects of 18 percent. Based on these preliminary project estimates:
a) What is the project's NPV?
b) What is the project's IRR?
c) What is the project's MIRR?