value: 14.28 points You did not receive full credit for this question in a previ

Question

value: 14.28 points You did not receive full credit for this question in a previous attempt Aria Acoustics, Inc., (AAI) projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 109,500 128,500 116,500 99,500 85,500 Production of the implants will require S1,530,000 in net working capital to start and additional net working capital investments each year equal to 10 percent of the projected sales increase for the following year. Total fixed costs are $1,380,000 per year, variable production costs are $228 per unit, and the units are priced at $348 each. The equipment needed to begin production has an installed cost of $24,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property. In five years, this equipment can be sold for about 10 percent of its acquisition cost. AAl is in the 30 percent marginal tax bracket and has a required return on all its projects of 15 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net present value What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal rate of return S 7,618,496.6 26.74% %

Explanation / Answer

The project is for 5 years only  

Net Cash Flow Y0 1 2 3 4 5 Net Capital Costs New equipment cost 24500000 Working Capital additional 1530000 Total Capital -26030000 Operating and Maintenance Costs Variable cost 24966000 29298000 26562000 22686000 19494000 Fixed cost 1380000 1380000 1380000 1380000 1380000 Escalation of working capital (10% with sales increase) 661200 Total Costs 0 -26346000 -31339200 -27942000 -24066000 -20874000 Sales Units 109500 units 128500 units 116500   units 99500 Units 85500 Units Revenue and Operating Benefits Sales 38106000 44718000 40542000 34626000 29754000 Salvage value 2450000 Total Benefits and Revenue 0 38106000 44718000 40542000 34626000 32204000 Cash Flow Before Taxes -26030000 11760000 13378800 12600000 10560000 11330000 Income Tax Calculation Depreciation Expense -3501050 -6000050 -4285050 -3060050 -2187850 Operating Cost -26346000 -31339200 -27942000 -24066000 -20874000 Operating Benefits 38106000 44718000 40542000 34626000 32204000 Net Income Taxes 0 -2477685 -2213625 -2494485 -2249985 -2742645 Cash Flow After Taxes -26030000 12783365 17165225 14390565 11370065 10775205 Discounted Cash Flow (After Tax) -26030000 11115969.57 12979376.18 9462030.081 6500871.566 5357181.244 Business Case Results: Assumptions: NPV of Cash Flow 19385428.64 Cost Escalation Factor 0 IRR 44.81% Benefit Escalation Factor 0 Profitability Index 1.744734101 Income Tax Rate 30% Simple Payback 1 Years 9 Months Required return 15% Discounted Payback 2 Years 2 Months

Related Questions

Navigate

• Browse (All)
• Browse V
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.