Problem $10-50$ Project Evaluation $($LO$2)$

Aylmer$-$in$-$You $($AIY$)$ Inc. projects unit sales for a new opera tenor emulation implant as follows:

Production of the implants will require $$761,000$ in net working capital to start and additional net working capital investments each

year equal to $25\%$ of the projected sales increase for the following year. $($Because sales are expected to fall in Year $5,$ there is no NWC

cash flow occurring for Year $4.)$ Total fixed costs are $$178,000$ per year, variable production costs are $$306$ per unit, and the units are

priced at $$360$ each. The equipment needed to begin production has an installed cost of $$11\mathrm{.}0$ million. Because the implants are

intended for professional singers, this equipment is considered industrial machinery and thus falls into Class $8$ for tax purposes $(20\%).$

In five years, this equipment can be sold for about $30\%$ of its acquisition cost. AlY is in the $40\%$ marginal tax bracket and has a required

return on all its projects of $19\%.$

Based on these preliminary project estimates, what is the NPV of the project? What is the IRR? $($Enter your answer in dollars, not in

millions of dollars, i$.$e$.1,234,567.$ Do not round your intermediate calculations. Round the final answers to $2$ decimal places. Omit

$ sign in your response.$)$

NPV

IRR