Net working capital to start-additional net working capital
Financial Management
Aria Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implant as follows: Year Unit Sales 1 90,000 2 103,000 3 117,000 4 112,000 5 93,000 Production of the implants will require $1,690,000 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 $1,590,000 per year, variable production costs are $310 per unit, and the units are priced at $425 each. The equipment needed to begin production has an installed cost of $21,900,000. 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 20 percent of its acquisition cost. AAI is in the 30 percent marginal tax bracket and has a required return on all its projects of 18 percent. MACRS schedule What is the NPV of the project?
