Aguilera Acoustics, Inc. ( AAI ) , projects unit sales for a new seven - octave voice
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Question:
Aguilera Acoustics, Inc. AAI projects unit sales for a
new sevenoctave voice emulation implant as follows:
Year Unit Sales
Production of the implants will require $ in net working capital to start
and additional net working capital investments each year equal to percent of the
projected sales increase for the following year. Total fi xed costs are $ per
year, variable production costs are $ per unit, and the units are priced at $
each. The equipment needed to begin production has an installed cost of
$ Because the implants are intended for professional singers, this
equipment is considered industrial machinery and thus qualifi es as sevenyear
MACRS property. In fi ve years, this equipment can be sold for about percent of
its acquisition cost. AAI is in the percent marginal tax bracket and has a required
return on all its projects of percent. Based on these preliminary project
estimates, what is the NPV of the project? What is the IRR?
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