Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows: Year 1 Unit Sales 113,000 129,000 2 140,000 162,000 101,000 SAWNLO 3 NPV IRR 4 Production of the implants will require $844,000 in net working capital to start and additional net working capital investments each year equal to 20% of the projected sales increase for the following year. (Because sales are expected to fall in Year 5, there is no NWC cash flow occurring for Year 4.) Total fixed costs are $198,000 per year, variable production costs are $278 per unit, and the units are priced at $400 each. The equipment needed to begin production has an installed cost of $25.5 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus falls into Class 8 for tax purposes (20% ). In five years, this equipment can be sold for about 25% of its acquisition cost. AIY is in the 40% marginal tax bracket and has a required return on all its projects of 19%. Based on these preliminary project estimates, what is the NPV of the project? What is the IRR? (Enter your answer in dollars, not in millions of dollars, i.e. 1,234,567. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.)
Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows: Year 1 Unit Sales 113,000 129,000 2 140,000 162,000 101,000 SAWNLO 3 NPV IRR 4 Production of the implants will require $844,000 in net working capital to start and additional net working capital investments each year equal to 20% of the projected sales increase for the following year. (Because sales are expected to fall in Year 5, there is no NWC cash flow occurring for Year 4.) Total fixed costs are $198,000 per year, variable production costs are $278 per unit, and the units are priced at $400 each. The equipment needed to begin production has an installed cost of $25.5 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus falls into Class 8 for tax purposes (20% ). In five years, this equipment can be sold for about 25% of its acquisition cost. AIY is in the 40% marginal tax bracket and has a required return on all its projects of 19%. Based on these preliminary project estimates, what is the NPV of the project? What is the IRR? (Enter your answer in dollars, not in millions of dollars, i.e. 1,234,567. Do not round your intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.)
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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Transcribed Image Text:Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows:
Year
Unit Sales
113,000
129,000
140,000
162,000
101,000
12445B
3
Production of the implants will require $844,000 in net working capital to start and additional net working capital investments
each year equal to 20% of the projected sales increase for the following year. (Because sales are expected to fall in Year 5.
there is no NWC cash flow occurring for Year 4.) Total fixed costs are $198,000 per year, variable production costs are $278 per
unit, and the units are priced at $400 each. The equipment needed to begin production has an installed cost of $25.5 million.
Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus falls into
Class 8 for tax purposes (20% ). In five years, this equipment can be sold for about 25% of its acquisition cost. AlY is in the 40%
marginal tax bracket and has a required return on all its projects of 19%.
NPV
IRR
Based on these preliminary project estimates, what is the NPV of the project? What is the IRR? (Enter your answer in dollars,
not in millions of dollars, i.e. 1,234,567. Do not round your intermediate calculations. Round the final answers to 2 decimal
places. Omit $ sign in your response.)
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