TABLE 8.3Depreciation under ModifiedAccelerated Cost RecoverySystem (MACRS)YEAR1234 in 600081011121314151627298&17181920213 YEARS3333444514810741RECOVERY PERIOD CLASS7 YEARS5 YEARS2000320019201152115205761429244917491249089308920893044610 YEARS1000180014401152092207370655065506560655032815 YEARS050009500855077006930623059005900591059005910590059105900591029520 YEARS037500721906677061770571305285048880452204462044610446204461044620446104462044610446204461044620446102231Depreciation is expressed as a percent of the asset's cost. These schedules are based on the IRS publication 946 How to Depreciate Propertyand other details on depreciation are prasanted later in the chapter. Note that five-year depreciation actually cames over six years because theIRS assumos purchase is made in midyear Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulationimplant as follows:Year Unit Sales88,000101,000H115,000110,00091,00012345Production of the implants will require $1,670,000 in net working capital to start andadditional net working capital investments each year equal to 10 percent of theprojected sales increase for the following year. Total fixed costs are $1,570,000 per year,variable production costs are $300 per unit, and the units are priced at $415 each. Theequipment needed to begin production has an installed cost of $21,700,000. Becausethe implants are intended for professional singers, this equipment is consideredindustrial machinery and thus qualifies as seven-year MACRS property. In five years, thisequipment can be sold for about 15 percent of its acquisition cost. The tax rate is 22percent and the required return on the project is 17 percent. Refer to Table 8.3.a. What is the NPV of the project? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)b. What is the IRR? (Do not round intermediate calculations and enter your answer asa percent rounded to 2 decimal places, e.g., 32.16.)NPVa.b. IRR%

NPV It is a capital budgeting tool to decide on whether the capital project should be accepted or…

Answered: Aria 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

Problem 1PS

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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 74, 000 87, 000 106, 250 98, 500 67, 800 Production of the implants will require $1,750,000 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 $3,700,000 per year, variable production costs are $260 per unit, and the units are priced at $390 each. The equipment needed to begin production has an installed cost of $17,500,000. 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 20 percent of its acquisition cost. The tax rate is 25 percent and the required return is 17 percent. MACRS schedule a. What is the NPV of the project? Note: Do not round intermediate…
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Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year 12345 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…
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