Question
The newest ambitious project from Tesla is the all-electric Model Y compact crossover. After spending $3 million on research, Tesla has developed the new model.
The newest ambitious project from Tesla is the all-electric Model Y compact crossover. After spending $3 million on research, Tesla has developed the new model. The project requires an initial investment in plant and equipment of $12 million. This investment will be depreciated straight-line over three years to a value of zero, but when the project comes to an end in three years, the equipment can, in fact, be sold for $500,000. Accepting this project will reduce the unit sales of Model X by 1000 units per year, the sale price of Model X is $40,000. The firm believes that working capital at each date must be maintained at 10% of next year's forecasted sales. Production costs are estimated 60% sale price and Model Y's expected sales is $48000. Sales forecasts are given in the following table. The firm pays tax at 35% and the required return on the project is 12%. What is the NPV?
Year 0 1 2 3 Sales in thousands 0 100 80 40
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started