Aria Acoustics, Inc. (AA), projects unit sales for new seven-octave voice emulation implant as following:
1 year 90.000
2 years 115,000
3 years 130,000
4 years 105,000
5 years 85,000
Production of the implants will require $1,800,000 in net working capital to start and addition net working capital investments each year equal to 15 percent of the projected states sales increase for the following year. Total fixed costs are $2,500.000 per year, variable production costs are $195 per unit, and the units are prices at $345 each. The equipment needed to begin production has an installed cost of $26,000,000. 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. AA1 is the 35 percent marginal tax bracket and has a required return on all its projects of 17 percent. Based on these preliminary project estimates, what is the NPV of the project? What is the IRR?