Question Details

(Solution Download) Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as fo


 

 

 

 

 

 

 

Aria Acoustics, Inc. (AAI), projects

 

unit sales for a new seven-octave voice emulation implant as

 

follows:

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

Unit Sales

191,000
2104,000
3118,000
4113,000
594,000

 

  

 

 

 

 

 

 

 

 

Production of the implants will

 

require $1,700,000 in net working capital to start and additional

 

net working capital investments each year equal to 10 percent of

 

the projected sales increase for the following year. Total fixed

 

costs are $1,600,000 per year, variable production costs are $315

 

per unit, and the units are priced at $430 each. The equipment

 

needed to begin production has an installed cost of $22,000,000.

 

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 15 percent of its acquisition cost. AAI is in the 30

 

percent marginal tax bracket and has a required return on all its

 

projects of 17 percent. Table 8.3.

 

 

  

 

 

 

 

 

 

 

 

What is the NPV of the project?

 

(Do not round intermediate calculations and round your

 

final answer to 2 decimal places (e.g., 32.16).)

 

 

  

 

 

 

 

 

 

 

 

  NPV

 

$   

 

  

 

 

 

 

 

 

 

 

What is the IRR? (Do not

 

round intermediate calculations. Enter your answer as a percent

 

rounded to 2 decimal places (e.g., 32.16).)

 

 

  

 

 

 

 

 

 

 

 

 

 

  IRR

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IRR=24.14%
Initial OutlayCashflowPVPV
$1,700,000Net working capital0$(23,700,000)$(23,700,000)$(23,700,000)
$22,000,000Equipment1$6,589,640$5,632,171$5,308,096
$23,700,0002$8,266,340$6,038,673$5,363,736
3$9,533,340$5,952,337$4,982,833
Unit salesUnit costUnit price4$8,800,840$4,696,569$3,705,377
191,000$315$4305$12,796,760$5,836,745$4,339,957
2104,000NPV$4,456,494.77$(0)
3118,000
4113,000
594,000
Sales - Fixed Cost - Variable Costtax30%
1$8,865,000rate of return17%
2$10,360,000
3$11,970,000
4$11,395,000
5$9,210,000
Additional Working Capital*
1$559,000
2$602,000
3$(215,000)
4$(817,000)
*if negative, we don't add additional working

 

capital

Depreciation Schedule
114.29%$3,143,800
224.49%$5,387,800
317.49%$3,847,800
412.49%$2,747,800
58.93%$1,964,600
68.92%$1,962,400
78.93%$1,964,600
84.46%$981,200
Equipment Salvage

 

3,300,000

 

My answer is not correct???

 

 

 

  

%

 


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