Question
NIU hopes to produce 50,000 electric scooters a year and plans to sell their scooters for $6,000/scooter. They will cost $20,000 per scooter to make.
NIU hopes to produce 50,000 electric scooters a year and plans to sell their scooters for $6,000/scooter. They will cost $20,000 per scooter to make. The machinery needed would immediately cost $80,000,000 and would be obsolete in 10 years. This investment would be depreciated to zero for tax purposes using a 10-year straight line depreciation. The plant manager estimates that the operation would require additional working capital of $2,000,000 immediately and it is recoverable at the end of the ten years. The expected market value from selling the machinery after 10 years is $1,000,000. NIU pays tax at a rate of 20% and has an opportunity cost of capital of 20%. The NPV is closest to:
a. $500M
b. $900M
c. $35M
d. $200M
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