Homework #2

Sony International has an investment opportunity to produce a new HDTV. The required investment on January 1 of this year is $175 million. The firm will depreciate the investment to zero using the straight-line method over four years. The investment has no resale value after completion of the project. The firm is in the 34% tax bracket. The price of the product will be $550 per unit, and will not change over the life of the project. Labor costs for year 1 will be $16.75 per hour, and will increase at 2% every year. Energy costs for year 1 will $4.35 per physical unit, and will increase at 3% per year. Revenue are received and costs are paid at year- end. The discount rate for Sony is 8%. Calculate the NPV and IRR of this project.

	Year 1	Year 2	Year 3	Year 4
Physical Production, in unit	150,000	160,000	180,000	170,000
Labor input, in hours	1,800,000	2,000,000	2,100,000	1,800,000
Energy input, physical units	175,000	195,000	205,000	200,000