Projects unit sales for a new seven-octave voice emulation implant as follows: P

Question

Projects unit sales for a new seven-octave voice emulation implant as follows:

Production of the implants will require $1,950,000 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 $4,100,000 per year, variable production costs are $264 per unit, and the units are priced at $402 each. The equipment needed to begin production has an installed cost of $18,300,000. 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 24 percent the required return is 15 percent. MACRS schedule

What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

NPV is NOT 7,305,141.07

Projects unit sales for a new seven-octave voice emulation implant as follows:

Explanation / Answer

First we calculate the after tax salavge value:

Now, we calculate the NPV:

NPV = $5,070,261.93

IRR = 23.56%

**This should be right**

Salvage value 4575000 Book Value 4082730 Taxable value 492270 Tax at 24% -118144.8 After tax salvage value 4456855.2

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