Otobai Company in Osaka, Japan is considering the introduction of an electricall

Question

Otobai Company in Osaka, Japan is considering the introduction of an electrically powered motor scooter for city use. The scooter project requires an initial investment of ¥15 billion. The cost of capital is 10%. The initial investment can be depreciated on a straight-line basis over the 10-year period, and profits are taxed at a rate of 50%.

What is the NPV of the electric scooter project? (Negative amount should be indicated by a minus sign. Enter your answer in billions. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Market Share = 0.1 *1100000 = 0.11 Million

Depreciation = 15 Billion * 0.10 = 1500 Million

Tax Saving on Depreciation = 1500 Million * 0.50 = 750 Million

Cash Flow before tax = (400000-360000)0.11 Million - 2 Billion

= 2400 Million

Cash Flow after tax = (2400*0.50) + 750

= 1950 Million

Present Value of Cash Inflows = 1950*6.145 = 11982.75 Million

Cash outlfows = 15000 Million

NPV = 11982.75 - 15000 = -3.017 Billion

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