Please do not solve in Excel, show calculations, workings and forumulas used clearly:
Net Present Value and Other Investment Rules: Chapter 6 Making Capital Investment Decisions: Chapter 7 (excluding 7.5 Investments of Unequal Lives: The Equivalent Annual Cost Method) Lion Acoustics (LA) projects unit sales for a new wireless headphone as follows: Year: 1 2 3 4 5 Unit Sales 85,000 109,000 117,000 125,000 104,000 Production of the headphones will require 2,050,000 in net working capital to start and additional net working capital investments each year (including Year 0) equal to 10 per cent of the projected sales for the following year. Prior to production, LA spent 900,000 on a market survey. Based on the results from this survey, the management decides to launch the product. In the first year, total fixed costs are 900,000 per year and variable product costs are 310 per unit. Both fixed and variable costs are expected to increase by only 2.1% per year, as compared to forecasted inflation rate of 3.5% per year. Each headphone is priced at 435 each. The equipment needed to manufacture the product has an installation cost of 32,000,000 and is depreciated by reducing balance method at 20% per annum. In 5 years, this equipment can be sold for 20% of its acquisition cost. LA is in the 35% marginal tax bracket and real interest rate is at 14.976%. Use THREE methods of project evaluation, one of which must be the Net Present Value analysis. With your results, advise whether this project should be accepted or rejected. USE NPV, PAYBACK PERIOD AND IRR METHOD TO DO THE ANALYSIS Net Present Value and Other Investment Rules: Chapter 6 Making Capital Investment Decisions: Chapter 7 (excluding 7.5 Investments of Unequal Lives: The Equivalent Annual Cost Method) Lion Acoustics (LA) projects unit sales for a new wireless headphone as follows: Year: 1 2 3 4 5 Unit Sales 85,000 109,000 117,000 125,000 104,000 Production of the headphones will require 2,050,000 in net working capital to start and additional net working capital investments each year (including Year 0) equal to 10 per cent of the projected sales for the following year. Prior to production, LA spent 900,000 on a market survey. Based on the results from this survey, the management decides to launch the product. In the first year, total fixed costs are 900,000 per year and variable product costs are 310 per unit. Both fixed and variable costs are expected to increase by only 2.1% per year, as compared to forecasted inflation rate of 3.5% per year. Each headphone is priced at 435 each. The equipment needed to manufacture the product has an installation cost of 32,000,000 and is depreciated by reducing balance method at 20% per annum. In 5 years, this equipment can be sold for 20% of its acquisition cost. LA is in the 35% marginal tax bracket and real interest rate is at 14.976%. Use THREE methods of project evaluation, one of which must be the Net Present Value analysis. With your results, advise whether this project should be accepted or rejected. USE NPV, PAYBACK PERIOD AND IRR METHOD TO DO THE ANALYSIS
