Question
Elon Musk was recently quoted as follows: The fundamental message that consumers should be taking today is that it's financially insane to buy anything other
Elon Musk was recently quoted as follows: "The fundamental message that consumers should be taking today is that it's financially insane to buy anything other than a Tesla. It will be like owning a horse in three yearsfine if you want to own a horse, but you should go into it with that expectation." Mr. Musk's argument was that buying his new car was a positive NPV investment for every individual, based on the ability to let a self-driving Robo-Taxi service use your car. Assume the following, and calculate the NPV to you of "investing" in a new Tesla. The vehicle price today is $50,000 and because of the technology in the car, it will last FOREVER. You will be paid $30,000 in after-tax cash flows for use of the car exactly one year from today, and the annual payments will thereafter decline by 10% every year going forward.
Assuming an appropriate discount rate for the investment in the car is 10%, what is the NPV of the investment in new Tesla? (Ignore any depreciation effects and assume that the cashflows received are after all relevant expenses and taxes) (10 points)
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