Production of the implants will require $1660000 in networking capital to start

Production of the implants will require $1660000 in networking capital to start and additional net working capitalinvestments each year equal to 15 percent of the projected salesincrease for the following year. Total fixed costs are $1560000per year variable production costs are $295 per unit and theunits are priced at $410 each. The equipment needed to beginproduction has an installed cost of $21600000. Because theimplants are intended for professional singers this equipment isconsidered industrial machinery and thus qualifies as seven-yearMACRS property. In five years this equipment can be sold for about20 percent of its acquisition cost. AAI is in the 35 percentmarginal tax bracket and has a required return on all its projectsof 18 percent.