Project Evaluation Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year 1 Unit Sales 71,000 2 84,000 3 103,000 4 5 95,000 64,000 Production of the implants will require $2.3 million 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 $2.9 million per year, variable production costs are $285 per unit, and the units are priced at $410 each. The equipment needed to begin production has an installed cost of $14.8 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 21 percent and the required return is 18 percent. Based on these preliminary project estimates, what is the NPV of the project? What is the IRR?

Project Evaluation Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year 1 Unit Sales 71,000 2 84,000 3 103,000 4 5 95,000 64,000 Production of the implants will require $2.3 million 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 $2.9 million per year, variable production costs are $285 per unit, and the units are priced at $410 each. The equipment needed to begin production has an installed cost of $14.8 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The tax rate is 21 percent and the required return is 18 percent. Based on these preliminary project estimates, what is the NPV of the project? What is the IRR?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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