To the response below

• Confirm the calculations or explain a correction to the calculation in the initial post.
• Compare how the required rate of return you used differs from your classmate's rate of return.
• Explain how the different rate of returns impacted the concluded NPV.
• Explain why the salvage value is added to the cash flows in the final year of the project.

Calculate NPV for Electro bicycle Company:

Net Profit Value Equation:

PV = CF / (1 + r) ⁿ

Cash Flows:

CF Year 0- 0

CF Year 1- (300,000)

CF Year 2- 300,000

CF Year 3- 500,000

CF Year 4- 800,000

CF Year 5- 4,000,000

Discount Rate (Required Rate of Return) = 23% (Based on my birth date)

Year 1: PV = ($300,000) / (1 + 0.23) ^1 = ($300,000) / 1.23 = ($243,902)

Year 2: $300,000 / (1 + 0.23) ^2 = $300,000 / 1.5129 = $198,295

Year 3: $500,000 / (1 + 0.23) ^3 = $500,000 / 1.8609 = $268,692

Year 4: $800,000 / (1 + 0.23) ^4 = $800,000 / 2.2887 = $349,518

Year 5: PV = ($4,000,000) / (1 + 0.23) ^5 = ($4,000,000) / 2.8153 = $1,420,805

NPV = ($243,902) + $198,295 + $268,692 + $349,518 + $1,420,805 = $1,933,407

Based on the initial working investment of (1,000,000) furnished at time 0, then recovery of working capital in year five of 2,000,00, which affected the annual project cash flow, Less the cost of plant equipment of (2,000,000). Therefore, initial project cost is (2,000,000).

NPV= 1,933,407 + (2,000,000) =

NPV= (6,593), or -66,593 /NPV < 0, Reject Project

NOTE: All calculation completed in excel (see attachment)

Explain, why working capital investments are subtracted each year in the cash flows.

Working capital investments are subtracted each year in the cash flows because working capital investments represents the additional funds needed to finance the day-to-day operations of the company. Working capital can include assets like inventory, accounts receivable, and accounts payable. Most of these types of accounts are a necessity to keeping a business running and require ongoing funding. When working capital is subtracted from the cash flows, it reflects the amount of cash tied up in maintaining the operating cycle of the business.

Explain, the meaning of the required rate of return for the project.

The required rate of return is the minimum return that an investor is expecting to receive for their investment or the minimum acceptable compensation for the investment's level of risk. Additionally, it represents the opportunity cost of investing in the project compared to an alternative investment opportunity that the company could partake it with similar risk. Regarding this project, the required rate of return is the return that the investors or decision-makers of the business deem to be acceptable based on risk, time value of money calculated through the NPV equation, and potential profit or value added to the business by completing the project.

Assume the auto company has a required rate of return of 15%. Based on the required rate of return you used for the Electro bicycles (based on your birthday date), is the Electro bicycle project more or less risky than the auto company? Explain your answer.

If the auto company has a required rate of return of 15% versus the required rate of return, I used of 23%, based on my birth date, then that would mean the electro bicycle project would be less risky at 15% than it would be at 23%. Typically, a higher required rate of return indicates that the investment would have a higher risk associated with the investment, while a lower required rate of return suggests a lower risk associated with the investment.

Based on your concluded NPV, should the company invest in this project to build Electro bicycles? Justify your answer.

Based on my concluded NPV of (6,593), or -66,593 the company should not invest in this project to build electro bicycles. My reasoning is based on the rules of NPV. Thus, in this case, the NPV < 0, therefore the company should not invest in this project given the 23% required rate of return and should reject the project in favor of other investments or other projects that present minimum risk for the decision-makers or investors of the company. If the required rate of return were lower, for example 6% then the conclusion would be different because the NPV > 0 and allows for the company to accept the risk of the project given the fact that there would be future value added to the company by accepting the project today.