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Alset Inc. is considering manufacturing and selling high - end electric automobiles for the next five years. It hired two research and development teams. Team
Alset Inc. is considering manufacturing and selling highend electric automobiles for the next five years. It hired two research and development teams.
Team #:
This team believes that it would be realistic to sell cars for $ aftertax profit per car ie operating cash flow per car The R&D team also estimates $ million in required initial investment. A percent annual rate of return would be appropriate for discounting all future cash flows.
a
Calculate the Net Present Value of this project according to Team #Lets call it the "basecase Net Present Value".A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to decimal places, eg
b
Team #:
This team has done a more sophisticated analysis, which may potentially greatly affect the project's revised Net Present Value!
The project goes as planned for five years but the following happens. After the first year ie starting Year the sales volume will be either cars annually or cars annually. cars per year basically means total loss of revenue and therefore a total failure! These two possible "paths" that the project may take starting Year can happen with equal probability.
What the nd team also noted is that it may be reasonable to shut this project down sooner than originally planned. This would make perfect sense to do in case of expected future loss of revenue ie zero revenue In such case, the project will end at the end of the first year, and all production equipment that will still have a lot of remaining value! would get sold and generate $ million in aftertax salvage value.
What is Team #s revised Net Present Value? In other words, what is Team #s calculation of the project's expected Net Present Value with the embedded option of shutting everything down at the end of Year as explained above? Do not round your intermediate calculations. Enter your final answer in dollars, not millions of dollars, and round to decimal places, eg
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