Aylmer-in-You (AIY) Inc. projects unit sales for a new opera tenor emulation implant as follows:

Production of the implants will require $800,000 in net working capital to start and additional net working capital investments each year equal to 40 percent of the projected sales increase for the following year. (Because sales are expected to fall in Year 5, there is no NWC cash flow occurring for Year 4.) Total fixed costs are $192,000 per year, variable production costs are $295 per unit, and the units are priced at $395 each. The equipment needed to begin production has an installed cost of $19.5 million. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus falls into Class 8 for tax purposes (20 percent). In five years, this equipment can be sold for about 30 percent of its acquisition cost. AIY is in the 40 percent marginal tax bracket and has a required return on all its projects of 23 percent. Based on these preliminary project estimates, what is the NPV of the project? What is the IRR?

Year ........................ Unit Sales
1 ............................... 107,000
2 ............................... 123,000
3 ............................... 134,000
4 ............................... 156,000
5 ................................ 95,500