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Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 2345 74,200 87,200 106,500 98,800 5 67,900 Production of the implants will require $1,800,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $3,800,000 per year, variable production costs are $261 per unit, and the units are priced at $393 each. The equipment needed to begin production has an installed cost of $17,700,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. (MACRS schedule) In five years, this equipment can be sold for about 25 percent of its acquisition cost. The tax rate is 21 percent the required return is 18 percent. a. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. NPV S b. IRR Answer is not complete. 3,073,582.67 x %

Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 2345 74,200 87,200 106,500 98,800 5 67,900 Production of the implants will require $1,800,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $3,800,000 per year, variable production costs are $261 per unit, and the units are priced at $393 each. The equipment needed to begin production has an installed cost of $17,700,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. (MACRS schedule) In five years, this equipment can be sold for about 25 percent of its acquisition cost. The tax rate is 21 percent the required return is 18 percent. a. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. NPV S b. IRR Answer is not complete. 3,073,582.67 x %

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...
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Raghubhai 

Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 2345 74,200 87,200 106,500 98,800 5 67,900 Production of the implants will require $1,800,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $3,800,000 per year, variable production costs are $261 per unit, and the units are priced at $393 each. The equipment needed to begin production has an installed cost of $17,700,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. (MACRS schedule) In five years, this equipment can be sold for about 25 percent of its acquisition cost. The tax rate is 21 percent the required return is 18 percent. a. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. NPV S b. IRR Answer is not complete. 3,073,582.67 x %
Transcribed Image Text:Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 2345 74,200 87,200 106,500 98,800 5 67,900 Production of the implants will require $1,800,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $3,800,000 per year, variable production costs are $261 per unit, and the units are priced at $393 each. The equipment needed to begin production has an installed cost of $17,700,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. (MACRS schedule) In five years, this equipment can be sold for about 25 percent of its acquisition cost. The tax rate is 21 percent the required return is 18 percent. a. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. NPV S b. IRR Answer is not complete. 3,073,582.67 x %
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