Question 1:
Aguilera Acoustics Inc. (AAI) projects unit sales for a new seven-octave voice emulation implant as follows:
Year
Unit Sales
1
80000
2
93000
3
107000
4
102000
5
83000
Production of the implants will require $1590000 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 $1490000 per year variable production costs are $260 per unit and the
units are priced at $375 each. The equipment needed to begin production has an installed cost of $20900000. 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. AAI is in the 30 percent marginal tax bracket and has a required return on all its projects of 19 percent.
Refer to Property Class Chart
Property class
year
three-year
five- year
seven- year
1
33.33%
20.00%
14.29%
2
44.45
32.00
24.49
3
14.81
19.20
17.49
4
7.41
11.52
12.49
5
11.52
8.93
6
5.76
8.92
7
8.93
8
4.46
a- What is the NPV of the project? (Do not round intermediate calculations and round your final answer to
2 decimal places. (e.g. 32.16))
b- What is the IRR? (Do not round intermediate calculations and round your final answer to 2 decimal
places. (e.g. 32.16))