Question
Aday Acoustics, Inc., projects unit sales for a new seven-octave voice emulation implant as follows: Year1 = Unit Sales of83,000 Year 2 = Unit Sales
Aday Acoustics, Inc., projects unit sales for a new seven-octave voice emulation implant as follows:
Year1 = Unit Sales of83,000
Year 2 = Unit Sales of 96,000
Year 3 = Unit Sales of 110,000
Year 4= Unit Sales of105,000
Year 5 = Unit Sales of86,000
Production of the implants will require $1,620,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $1,520,000 per year, variable production costs are $275 per unit, and the units are priced at $390 each. The equipment needed to begin production has an installed cost of $21,200,000. 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 25 percent of its acquisition cost. The company is in the 30 percent marginal tax bracket and has a required return on all its projects of 19 percent.MACRS schedule.
a) What is the NPV of the project?
b) What is the IRR of the project?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started