Aria Acoustics, Incorporated (AA), projects unit sales for a new 7-octave voice emulationimplant as follows:Year Unit Sales1234574,40079,80085,40082,70069,500Production of the implants will require $1,480,000 in net working capital to start andadditional net working capital investments each year equal to 15 percent of theprojected 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. Theequipment needed to begin production has an installed cost of $18,500,000. Becausethe implants are intended for professional singers, this equipment is consideredindustrial machinery and thus qualifies as 7-year MACRS property. In five years, thisequipment can be sold for about 20 percent of its acquisition cost. The tax rate is 23percent and the required return is 17 percent. (MACRS schedule)a. NPVb. IRRa. 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 of the project? (Do not round intermediate calculations and enteryour answer as a percent rounded to 2 decimal places, e.g., 32.16.)Saved

YearUnit Sales174,400279,800385,400482,700569,500Selling price = $325Variable cost per unit =…

Answered: Aria Acoustics, Incorporated (AA),…

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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You are responsible to manage an IS project with a 4-year horizon. The annal cost of the project is estimated at $40,000 per year, and a one-time costs of $120,000. The annual monetary benefit of the project is estimated at $96,000 per year with a discount rate of 6 percent. a. Calculate the overall return on investment (ROI) of the project. b. Perform a break-even analysis (BEA). At what year does break-even occur?
You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $490 per unit and sales volume to be 1,200 units in year 1; 1,125 units in year 2; and 1,000 units in year 3. The project has a 3-year life. Variable costs amount to $270 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $138,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $26,000. NWC requirements at the beginning of each year will be approximately 30 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 11 percent. What is the operating cash flow for the project in year 2? Note: Enter your answer as a whole number. Operating cash flow
Cisco is considering the development of a wireless home networking appliance, called HomeNet. The company expects to sell 370000 units per year over the project's life at an expected wholesale price of 170. Actual production will be outsourced at a cost of 96 per unit. Additionally, the company will spend $27000 in interest expense each year towards financing the project. In year 1, the firm must increase its accounts receivable by $870000, which will return to regular levels at the end of the project. The company spent $291000 last year on software to develop the router. $106.8 million of new equipment will be purchased and then depreciated using the straight line method over a 10-year life. They expect the market value of the equipment to depreciate at 6.6% per year. The project is expected to end in year 7. The current tax rate is 21%. Use this rate for both income tax rate and the capital gains rate. The WACC for the company is 12.6%. What is the NPV of the project?μ-
You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $400 per unit and sales volume to be 1,000 units in year 1; 1,500 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $35,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 10 percent. What change in NWC occurs at the end of year 1?
You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $450 per unit and sales volume to be 1,200 units in year 1; 1,325 units in year 2; and 1,000 units in year 3. The project has a 3-year life. Variable costs amount to $250 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $150,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $30,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 10 percent. What is the operating cash flow for the project in year 2? Note: Enter your answer as a whole number. Operating cash flow
You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $490 per unit and sales volume to be 1,200 units in year 1; 1,125 units in year 2; and 1,000 units In year 3. The project has a 3-year life. Variable costs amount to $270 per unit and fixed costs are $100,000 per year. The project requires an initial Investment of $138,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $26,000. NWC requirements at the beginning of each year will be approximately 30 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 11 percent. What change in NWC occurs at the end of year 1? (Enter a decrease as a negative amount using a minus sign.) Decrease of
Oahu Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 5,100 units at $276 per unit. The equipment has a cost of $521,700, residual value of $39,300, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Line Item Description Amount Cost per unit: Direct labor $47.00 Direct materials 182.00 Factory overhead (including depreciation) 31.60 Total cost per unit $260.60 Determine the average rate of return on the equipment. If required, round to the nearest whole percent.
Oregon Equipment Company wants to develop a new log-splitting machine for rural homeowners. Market research has determined that the company could sell 6,000 log-splitting machines per year at a retail price of $700 each. An independent catalog company would handle sales for an annual fee of $2,000 plus $50 per unit sold. The cost of the raw materials required to produce the log-splitting machines amounts to $80 per unit. If company management desires a return equal to 10 percent of the final selling price, what is the target conversion and administrative cost per unit? Round answer to the nearest cent.
The proposed capital project calls for the Manufacturing Department to fully automate a production facility using one of two different advanced robotics systems. System A will incur development costs of $175,500. System B will cost $650,000 to develop. Both systems will be capitalized and amortized using a CCA rate of 10%. In addition, the firm believes that Net Working Capital will rise by $95,000 at time zero and then by an additional $9,000 at the end of each year for each year that the new system is operating (except at the end of the final year of the project). This applies to both alternatives. However, all of the increase in Net Working Capital will be recovered at the end of the project.If the new automated robotics system is put into use, the pre-tax cost savings each year are estimated as follows:Table 1Year System A System B1 $60,000 $350,0002 $50,000 $220,0003 $50,000 $240,0004 $50,000 $260,0005 $25,000 $280,000 As the financial analyst, you are required to draft a…
You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $450 per unit and sales volume to be 1,000 units in year 1; 1,250 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $250 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $180,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $40,000. NWC requirements at the beginning of each year will be approximately 25 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 12 percent. (Use SL depreciation table) What will the cash flows for this project be? Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Year Total cash flow 0 1 2…
TopCap Company is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $122,000. In addition, delivery and installation costs will total $5,000. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. Note: Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals. 2022 2023 2024 2025 2026 3,600 dozen 5,600 dozen 8,500 dozen 11,300 dozen 12,000 dozen The caps have a contribution margin of $8.00 per dozen. Fixed costs associated with the additional production (other than depreciation expense) will be negligible. Salvage value and the investment in working capital should be ignored. TopCap Company's cost of capital for this capacity expansion has been set at 14%.
TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $123,000. In addition, delivery and installation costs will total $5,500. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.) 2019 3,600 dozen 2020 5,600 dozen 2021 8,500 dozen 2022 11,300 dozen 2023 12,000 dozen The caps have a contribution margin of $8.00 per dozen. Fixed costs associated with the additional production (other than depreciation expense) will be negligible. Salvage value and the investment in working capital should be ignored. TopCap Co.'s cost of capital for this capacity expansion has been set at 14%. Required: The caps have a…

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