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 ¥16.7 billion. The cost of capital is 12%. 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.)

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 ¥16.7 billion. The cost of capital is 12%. 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%.

Explanation / Answer

it is not clear whether the fixed   cost is inclusive of depreciation or not Assuming fixed costs includes depreciation Also assuming amrket share=0.1=10% So Annual sales volume =10%of 1.27 million= 127,000 nos Amt in Yen billion NPV details Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Investment       (16.70) Sales =      72.39      72.39 72.39     72.39 72.39 72.39     72.39    72.39 72.39     72.39 Variable cost =      67.31      67.31 67.31     67.31 67.31 67.31     67.31    67.31 67.31     67.31 Fixed cost        2.17        2.17      2.17       2.17     2.17      2.17       2.17      2.17     2.17       2.17 Taxable Income        2.91        2.91      2.91       2.91     2.91      2.91       2.91      2.91     2.91       2.91 Post Tax Income @50%        1.46        1.46      1.46       1.46     1.46      1.46       1.46      1.46     1.46       1.46 Add Back depreciation        1.67        1.67      1.67       1.67     1.67      1.67       1.67      1.67     1.67       1.67 Net Cash flow        3.13        3.13      3.13       3.13     3.13      3.13       3.13      3.13     3.13       3.13 PV factor @12%                1      0.893      0.797 0.712     0.636 0.567 0.507     0.452    0.404 0.361     0.322 PV of Cash Flows     (16.70)        2.79        2.49      2.22       1.99     1.77      1.58       1.41      1.26     1.13       1.01 NPV =          0.96

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