Aria Acoustics, Inc. (AAI), projects unit sales for a

new seven-octave voice emulation implant as follows:

Year Unit Sales

1 67,500

2 83,900

3 98,700

4 86,000

5 72,000

Production of the implants will require $1,500,000 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

$1,950,000 per year, variable production costs are $230 per unit, and the units

are priced at $355 each. The equipment needed to begin production has an installed

cost of $18,500,000. 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 15 percent. Based on these

preliminary project estimates, what is the NPV of the project? What is the IRR?