Aylmer-in-You (AMY) Inc. projects unit sales for a new opera tenor emulation implant as follows: Year 3 Unit Sales 106,000 120,000 130,000 150,000 95,000 Production of the implants will require $793,000 in net working capital to start and additional net working capital investments each year equal to 25% 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 $182,000 per year, variable production costs are $294 per unit, and the units are priced at $360 each. The equipment needed to begin production has an installed cost of $13.0 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 30% of its acquisition cost. AlY is in the 40% marginal tax bracket and has a required return on all its projects of 25%. 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.) 72054 25.19
Aylmer-in-You (AMY) Inc. projects unit sales for a new opera tenor emulation implant as follows: Year 3 Unit Sales 106,000 120,000 130,000 150,000 95,000 Production of the implants will require $793,000 in net working capital to start and additional net working capital investments each year equal to 25% 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 $182,000 per year, variable production costs are $294 per unit, and the units are priced at $360 each. The equipment needed to begin production has an installed cost of $13.0 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 30% of its acquisition cost. AlY is in the 40% marginal tax bracket and has a required return on all its projects of 25%. 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.) 72054 25.19
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
Related questions
Question
Ee 34.
Transcribed Image Text:Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows:
Year
2
3
Unit Sales
106,000
120,000
130,000
150,000
95,000
Production of the implants will require $793,000 in net working capital to start and additional net working capital investments each
year equal to 25% 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 $182,000 per year, variable production costs are $294 per unit, and the units are
priced at $360 each. The equipment needed to begin production has an installed cost of $13.0 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 30% of its acquisition cost. AlY is in the 40% marginal tax bracket and has a required
return on all its projects of 25%.
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.)
72054
25.19
00
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