Problem 10-10 Scenario analysis Otobai Company in Osaka, Japan is considering th
ID: 2808726 • Letter: P
Question
Problem 10-10 Scenario analysis 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% Consider the following estimates for the scooter project. 1.27 million Market size Market share Unit price Unit variable cost530,000 Fixed cost 570,000 2.17 billion 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.) Net present value billionExplanation / Answer
(1.27*1000000)/10000000000
0.000127
No of units
cost of project
-16.7
total contribution margin=(sales -variable cost)*no of units = (570000-530000)*.000127
5.08
less fixed cost
2.17
less depreciation
1.67
EBIT
1.24
less tax-50%
0.62
Earning after tax
0.62
add depreciation
1.67
EATBD
2.29
year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 12%
0
-16.7
-16.7
1
2.29
2.044642857
2
2.29
1.82557398
3
2.29
1.629976767
4
2.29
1.4553364
5
2.29
1.2994075
6
2.29
1.160185267
7
2.29
1.035879703
8
2.29
0.924892592
9
2.29
0.825796957
10
2.29
0.737318712
NPV
Sum of present value of cash flow
-3.76
(1.27*1000000)/10000000000
0.000127
No of units
cost of project
-16.7
total contribution margin=(sales -variable cost)*no of units = (570000-530000)*.000127
5.08
less fixed cost
2.17
less depreciation
1.67
EBIT
1.24
less tax-50%
0.62
Earning after tax
0.62
add depreciation
1.67
EATBD
2.29
year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 12%
0
-16.7
-16.7
1
2.29
2.044642857
2
2.29
1.82557398
3
2.29
1.629976767
4
2.29
1.4553364
5
2.29
1.2994075
6
2.29
1.160185267
7
2.29
1.035879703
8
2.29
0.924892592
9
2.29
0.825796957
10
2.29
0.737318712
NPV
Sum of present value of cash flow
-3.76
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