Question
Electro Company is planning to develop a new electric motorcycle. It estimates that it will need to invest $30 million in equipment and facilities. Its
Electro Company is planning to develop a new electric motorcycle. It estimates that it will need to invest $30 million in equipment and facilities. Its management team estimates that the new motorcycle will generate a net cash flow of $5 million in year 1, $7 million in year 2, $10 million in year 3, $14 million in year 4, and $17 million in year 5. Assuming that Electro evaluates all investments using a 15% rate of return (i.e., discount rate), what is the NPV of this project? Should it proceed? Show your work, and explain the reasoning for your answer.
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