Question

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

Year		Unit Sales
1			75,600
2			88,600
3			108,250
4			100,900
5			68,600

Production of the implants will require $2,150,000 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 $4,500,000 per year, variable production costs are $268 per unit, and the units are priced at $414 each. The equipment needed to begin production has an installed cost of $19,100,000. 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. The tax rate is 23 percent the required return is 13 percent. a. What is the NPV of the project? (Only round the answer to 2 decimal places, do not round intermediate calculations.) b. What is the IRR? (Only round the answer to 2 decimal places, do not round intermediate calculations.)

Answer 1