Aguilera Acoustics, Inc., (AAI) projects unit sales for a new seven-octave voice

Question

Aguilera Acoustics, Inc., (AAI) projects unit sales for a new seven-octave voice emulation implant as follows:

Production of the implants will require $1,500,000 in net working capital to start and additional net working capital investments each year equal to 15 percent of the projected sales increase for the following year. Total fixed costs are $1,450,000 per year, variable production costs are $230 per unit, and the units are priced at $355 each. The equipment needed to begin production has an installed cost of $24,000,000. 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 20 percent of its acquisition cost. AAI is in the 35 percent marginal tax bracket and has a required return on all its projects of 18 percent.

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

  

  

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

  

Aguilera Acoustics, Inc., (AAI) projects unit sales for a new seven-octave voice emulation implant as follows:

Explanation / Answer

Net Opeating Cash Outflow =>24000000+ 1500000 => -$ 25500000

salvage value => 24000000-3429600-5877600-4197600-2997600-2143200 => 5084400

Net of tax => 5084400 *65% => 3304860

Total Cash Inflow => 29229786

NPV => 29229786 - 25500000 => $3729786

Answer 2

Irr => 4.98%

Particulars 1 2 3 4 5 Sales 31062500 37275000 42245000 38340000 32660000 Variable Cost 20125000 24150000 27370000 24840000 21160000 Fixed Cost 1450000 1450000 1450000 1450000 1450000 Depreciation 3429600 5877600 4197600 2997600 2143200 EBIT 6057900 5797400 9227400 9052400 7906800 taxes 2120265 2029090 3229590 3168340 2767380 EAT 3937635 3768310 5997810 5884060 5139420 Depreciation 3429600 5877600 4197600 2997600 2143200 Operating cash Flow 7367235 9645910 10195410 8881660 7282620 Salvage value(net of Tax) 3304860 Working Capital 1500000 Net Operating cash Flow 7367235 9645910 10195410 8881660 12087480 Discounting Factor 0.847 0.718 0.608 0.516 0.437 Cash Inflow 6240048 6925763 6198809 4582937 5282229

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