Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 2345n 74,200 87,200 106,500 98,800 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? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the IRR? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. NPV b. IRR %

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 15P
icon
Related questions
Question
Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows:
Year Unit Sales
1
2345n
74,200
87,200
106,500
98,800
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?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
b. What is the IRR?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.
a. NPV
b. IRR
%
Transcribed Image Text:Aria Acoustics, Incorporated (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 2345n 74,200 87,200 106,500 98,800 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? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the IRR? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. NPV b. IRR %
Expert Solution
steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College