Aria Acoustics, Incorporated (AAI), projects unit sales for a new 7-octave voice emulation implant as follows: Year Unit Sales 1 74,400 2 79,800 3 85,400 4 82,700 5 69,500 Production of the implants will require $1,480,000 in net working capital to start and add
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Aria Acoustics, Incorporated (AAI), projects unit sales for a new 7-octave voice emulation implant as follows: |
| Year | Unit Sales |
|---|---|
| 1 | 74,400 |
| 2 | 79,800 |
| 3 | 85,400 |
| 4 | 82,700 |
| 5 | 69,500 |
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Production of the implants will require $1,480,000 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 $3,800,000 per year, variable production costs are $143 per unit, and the units are priced at $325 each. The equipment needed to begin production has an installed cost of $18,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as 7-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 23 percent and the required return is 17 percent. (MACRS schedule) |
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