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…

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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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?