Question

Aday Acoustics, Inc., projects unit sales for a new 7-octave voice emulation implant as follows: Year nmt Unit Sales 77,100 82,500 89,000 85,400 73,100 Production of the implants will require $1,570,000 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 $4,250,000 per year, variable production costs are $152 per unit, and the units are priced at $334 each. The equipment needed to begin production has an installed cost of $19,400,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as 7-year MACRS property. In five years, this equipment can be sold for about 20 percent of its acquisition cost. The company is in the 22 percent marginal tax bracket and has a required return on all its projects of 17 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 of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) NPV IRR

Answer 1

solution: 이 Calculation of NPV units sales x sale price Total sales Less : variable cost (units sales * VC per unit) Les : fixed cost Less : depreciation ** EBT Less : Tax at 22% EAT Add : depreciation OCF Inital cost working capital changes after tax sale value* total cash flow x discount factor at 17% PV NPV (sum of PV) 11 5 77100 82500 89000 85400 73100 334 334 334 334 334 25751400 27555000 29726000 28523600 24415400 -11719200 -12540000 -135280001 -12980800 -11111200 -4250000 -4250000 -4250000 -4250000 -4250000 -2772260 -4751060 -3393060 -2423060 -1732420 7009940 6013940 8554940 8869740 7321780 - 1,542,186.80 - 1,323,066.80 - 1,882,086.80 - 1,951,342.80- 1,610,791.60 5,467,753.20 4,690,873.20 6,672,853.20 | 6,918,397.20 5,710,988.40 2,772,260.00 4,751,060.00 3,393,060.00 2,423,060.00 1,732,420.00 1 8,240,013.20 9,441,933.20 10,065,913.20 9,341,457.20 7,443,408.40 - 19,400,000.00 |- 1,570,000.00 - 270,540.00 325,650.00 180,360.00 616,230.00 1,369,600.00 3,978,590.80 - 20,970,000.00 7,969,473.20 9,116,283.20 10,246,273.20 9,957,687.20 12,791,599.20 1.00000 0.85470 0.73051 0.62437 0.53365 0.45611 - 20,970,000.00 6,811,515.56 6,659,568.41 6,397,471.30 5,313,920.25 5,834,391.05 10,046,866.57 workings: total **depreciation Cost x de preciation rate depreciation 19,400,000.00 0.1429 2,772,260.00 19,400,000.00 0.2449 4,751,060.00 19,400,000.00 0.1749 3,393,060.00 4 19,400,000.00 0.1249 2,423,060.00 5 19,400,000.00 0.0893 1,732,420.00 15071860 after tax sale value* cost accumulated depreciation book value after 5 years Sale value = 20%*19400000 Loss on sale Tax shield on Loss: 448140*22% after tax sale value 19400000 15071860 4328140 3880000 448140 98591 3978591 discount factor formula = 1/(1+r)^n

Part b: IRR using trial and error method year cash flow 0 - 20,970,000.00 1 7,969,473.20 2 9,116,283.20 3 10,246,273.20 4 9,957,687.20 5 12,791,599.20 discount factor at 30% PV at 30% discount factor at 35% PV at 35% discount factor at 34% PV at 34% c=a*b e=a*d g=a*f 1.00000 - 20,970,000.00 1.00000 - 20,970,000.00 1.00000 - 20,970,000.00 0.76923 6,130,364.00 0.74074 5,903,313.48 0.74627 5,947,368.06 0.59172 5,394,250.41 0.54870 5,002,075.83 0.55692 5,077,012.25 0.45517 4,663,756.58 0.40644 4,164,516.87 0.41561 4,258,449.84 0.35013 3,486,463.08 0.30107 2,997,943.24 0.31016 3,088,440.84 0.26933 3,445,149.57 0.22301 2,852,699.33 0.23146 2,960,743.96 NPV 2,149,983.64 NPV 49,451.25 NPV 362,014.95 By interpolation: IRR = 135-149951.25/(1951.254 362019.95) 34.836