Homework Help is Here – Start Your Trial Now!
Business
Finance
Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: . The company has spent $150,000 for a marketing study to evaluate the project. The study shows that the company will sell 75,000 units per year for 6 years. In addition, the company will lose sales of 12,000 units per year of its high

Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: . The company has spent $150,000 for a marketing study to evaluate the project. The study shows that the company will sell 75,000 units per year for 6 years. In addition, the company will lose sales of 12,000 units per year of its high

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
Problem 1PS
See similar textbooks
icon
Related questions
Question
please no excel!!
please show all work and calculations
thank you
 
Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: The company has spent $150,000 for a marketing study to evaluate the project. The study shows that the company will sell 75,000 units per year for 6 years. In addition, the company will lose sales of 12,000 units per year of its high priced voice emulation implant. ▪ The variable production costs for new voice emulation implant are $260 per unit, and the units are priced at $380 each. Total fixed costs are $600,000 per year. The high-priced voice emulation implant has production costs are $440 per unit, and the units are priced at $640 each. ▪ Production of the implants will require $2,000,000 in net working capital to start, and that amount will be returned at the end of the project. ▪ The equipment will cost $20,000,000, and will be depreciated on a straight- line basis to $8,000,000 in 6 years. At the end of 6th year, the equipment can be scrapped for $7,000,000 ▪ AAI is in the 20 percent marginal tax bracket. The cost of capital is 12% per year. The board of directors of AAI decided to only invest in those projects with less than 4.5 years of payback period. What is the NPV, IRR and payback period of this project? Should we accept or reject this project?
Transcribed Image Text:Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: The company has spent $150,000 for a marketing study to evaluate the project. The study shows that the company will sell 75,000 units per year for 6 years. In addition, the company will lose sales of 12,000 units per year of its high priced voice emulation implant. ▪ The variable production costs for new voice emulation implant are $260 per unit, and the units are priced at $380 each. Total fixed costs are $600,000 per year. The high-priced voice emulation implant has production costs are $440 per unit, and the units are priced at $640 each. ▪ Production of the implants will require $2,000,000 in net working capital to start, and that amount will be returned at the end of the project. ▪ The equipment will cost $20,000,000, and will be depreciated on a straight- line basis to $8,000,000 in 6 years. At the end of 6th year, the equipment can be scrapped for $7,000,000 ▪ AAI is in the 20 percent marginal tax bracket. The cost of capital is 12% per year. The board of directors of AAI decided to only invest in those projects with less than 4.5 years of payback period. What is the NPV, IRR and payback period of this project? Should we accept or reject this project?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 15 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS