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

Year Unit Sales

1 83,000

2 96,000

3 110,000

4 105,000

5 86,000

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 tax rate is 22 percent and the required return on the project is 19 percent. Refer to Table 8.3.

Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 83,000 96,000 110,000 105,000 86,000 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 tax rate is 22 percent and the required return on the project is 19 percent. Refer to Table 8.3. a. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR? (Do not round intermediate calculations and enter your answer as 2345 TABLE 8.3 Depreciation under Modified Accelerated Cost Recovery System (MACRS) YEAR 1 2 15 YEARS 20 YEARS 0500 03750 0950 07219 0855 06677 0770 06177 0693 05713 0623 05285 0590 04888 0590 04522 0591 04462 0590 04461 0591 04462 0590 04461 0591 04462 0590 04461 0591 04462 0295 04461 04462 04461 04462 04461 21 02231 Depreciation is expressed as a percent of the asser's cost. These schedules are based on the IRS publication 946 low to Depreciate Property and other details on depreciation are presented later in the chapter. Note that five-year depreciation actually cames over six years because the IRS asmes purchase is made in midyear 234 4 5 6 7 890HPBH56D8pma 10 11 12 13 14 15 16 17 18 19 20 RECOVERY PERIOD CLASS 7 YEARS 1429 2449 1749 1249 0893 0892 0893 0446 3 YEARS 3333 4445 1481 0741 5 YEARS 2000 3200 1920 1152 1152 0576 10 YEARS 1000 1800 1440 1152 0922 0737 0655 0655 0656 0655 0328