Suppose Elon Musk has an existing business making electric bicycles. Sales are so strong that he is considering selling his existing factory and replacing it with a new factory. a. The current factory can be sold for $100mm; it has a tax value of $50mm. The current factory produces annual after tax cash flow of $50mm. Elon believe that after eight years from now, the existing factory would have a resale value of $20mm with a tax value then of $8mm. b. A new bicycle factory can be built for $250mm and equipment will cost $300mm plus installation costs of $50mm. Assume the plant and equipment can be built and operational on day one. c. Expect working capital needs as follows (starting on day one): Increase of $35mm in Accounts Receivable and $50mm of Inventory; expect increased $25mm of Accounts Payable. d. He initially projects after-tax cash flows of $200mm per year for eight years occurring on the last day of each year, starting at the end of year one and finishing after eight years of operations. e. Assume that after eight years, Elon gets bored and liquidates the business. Assume the working capital is liquidated and the PP&E is sold for $200mm (assume it had been depreciated to $150mm). f. Assume a tax rate of 30% and a cost of capital of 16%.

17. For the Musk project, what is the present value of the net after tax cash flows? $342.8mm $651.5mm $1,200mm $895.2mm $868.7mm

18. For the Musk project, what is the aggregate amount of the net terminal cash flows? Not yet present valued! $270.0mm $168.6mm $435.3mm $185.0mm $228.6mm

19. For the Musk project, what is the present value of the terminal cash flows? $69.7mm $152.4mm $56.4mm $234.9mm

20. For the Musk project, what is the NPV? $113mm $284mm $146mm $176mm $652mm

21. For the Musk project, what is the IRR? 19% 23% 28% 16%