Question

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

YEAR	UNIT SALES
1	80,000
2	97,000
3	109,000
4	103,000
5	78,000

Production of the implants will require $1,600,000 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 $1,900,000 per year, variable production costs are $195 per unit, and the units are priced at $345 each. The equipment needed to begin production has an installed cost of $19,500,000. 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 20 percent of its acquisition cost. AAI is in the 35 percent marginal tax bracket and has a required return on all its projects of 17 percent. Based on these preliminary project estimates, what is the NPV of the project? What is the IRR?

YEAR	0	1	2	3	4	5
Ending Book Value
Sales
Variable Costs
Fixed Costs
Depreciation
EBIT
Taxes
Net Income
Depreciation
Operating Cash Flow
NET CASH FLOW
Operating Cash Flow
Change in NWC
Capitol spending
Total cash flow

Net Present Value ?

Internal Rate of Return ?

This is the entire question.

Answer 1