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Homework #2
Sony International has an investment opportunity to produce a new HDTV. The required
investment on January 1 of this year is $175 million. The firm will depreciate the investment to
zero using the straight-line method over four years. The investment has no resale value after
completion of the project. The firm is in the 34% tax bracket. The price of the product will be
$550 per unit, and will not change over the life of the project. Labor costs for year 1 will be
$16.75 per hour, and will increase at 2% every year. Energy costs for year 1 will $4.35 per
physical unit, and will increase at 3% per year. Revenue are received and costs are paid at yearend. The discount rate for Sony is 8%. Calculate the NPV and IRR of this project.
Physical Production, in unit
Labor input, in hours
Energy input, physical units
Year 1
150,000
1,800,000
175,000
Year 2
160,000
2,000,000
195,000
Year 3
180,000
2,100,000
205,000
Year 4
170,000
1,800,000
200,000

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