Aria Acoustics, Incorporated (AAI), projects unit sales for a new 7-octave voice emulationimplant as follows:Year Unit Sales1274,70080,1002345585,80083,00069,900Production of the implants will require $1,490,000 in net working capital to start andadditional net working capital investments each year equal to 20 percent of theprojected sales increase for the following year. Total fixed costs are $3,850,000 per year,variable production costs are $144 per unit, and the units are priced at $326 each. Theequipment needed to begin production has an installed cost of $18,600,000. 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 25 percent of its acquisition cost. The tax rate is 24percent and the required return is 18 percent. (MACRS schedule)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 of the project? (Do not round intermediate calculations and enteryour answer as a percent rounded to 2 decimal places, e.g., 32.16.)a. NPVb. IRR

Net present value is the difference between the present value of cash inflows and present value of…

Answered: Aria Acoustics, Incorporated (AAI),…

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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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%.
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