Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit...

60.1K

Verified Solution

Question

Finance

Aria Acoustics, Inc. (AAI), projects unit sales for a newseven-octave voice emulation implant as follows:
Year
Unit Sales
1
73,000
2
86,000
3
105,000
4
97,000
5
67,000
Production of the implants will require $1,500,000 in networking capital to start and additional net working capitalinvestments each year equal to 15 percent of the projected salesincrease for the following year. Total fixed costs are $3,200,000per year, variable production costs are $255 per unit, and theunits are priced at $375 each. The equipment needed to beginproduction has an installed cost of $16,500,000. Because theimplants are intended for professional singers, this equipment isconsidered industrial machinery and thus qualifies as seven-yearMACRS property. In five years, this equipment can be sold for about20 percent of its acquisition cost. The tax rate is 21 percent taxand the required return is 18 percent.
MACRS SCHEDULE:
Year 1- 14,29%
Year 2- 24,49%
Year 3- 17,49%
Year 4- 12,49%
Year 5- 8,93%
Year 6- 8,92%
Year 7- 8,93%
Year 8- 4,46%
a.
What is the NPV of the project?
b.
What is the IRR?

Answer & Explanation Solved by verified expert

3.8 Ratings (663 Votes)

Answer 1 Calculation of NPV of project Year 0 1 2 3 4 5 Investment in equipment 16500000 Increase in net working capital 1500000 731250 1068750 Operating cash flow 4887549 6473379 8032029 7100379 4133025 Recovery of net working capital 3300000 After tax sale value of equipment 3380042 Net Cash flow 18000000 4156299 5404629 8032029 7100379 10813066 x Discount Factor 18 1 0847457627 071818443 0608630873 0515788875 0437109216 Present Values See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Aria Acoustics, Inc. (AAI), projects unit sales for a newseven-octave voice emulation implant as follows:YearUnit Sales173,000286,0003105,000497,000567,000Production of the implants will require $1,500,000 in networking capital to start and additional net working capitalinvestments each year equal to 15 percent of the projected salesincrease for the following year. Total fixed costs are $3,200,000per year, variable production costs are $255 per unit, and theunits are priced at $375 each. The equipment needed to beginproduction has an installed cost of $16,500,000. Because theimplants are intended for professional singers, this equipment isconsidered industrial machinery and thus qualifies as seven-yearMACRS property. In five years, this equipment can be sold for about20 percent of its acquisition cost. The tax rate is 21 percent taxand the required return is 18 percent.MACRS SCHEDULE:Year 1- 14,29%Year 2- 24,49%Year 3- 17,49%Year 4- 12,49%Year 5- 8,93%Year 6- 8,92%Year 7- 8,93%Year 8- 4,46%a.What is the NPV of the project?b.What is the IRR?