Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

your Saudi *Put your name and signature at the top of the page. 2) NPV Analysis (20 mins, 20 points) Tesla is about to undertake

image text in transcribed

your Saudi *Put your name and signature at the top of the page. 2) NPV Analysis (20 mins, 20 points) Tesla is about to undertake an investment to produce an enhanced version of its Cyber Truck. The project requires an initial fixed asset investment of $300 million and will last for 15 years. The fixed asset will be depreciated straight-line to zero over its useful life. The scrap value of the fixed asset is zero. The fixed cost of the project is $25 million per year. It costs $70,000 to produce a cyber truck. The marketing department thinks that they can sell each truck for $95,000. Assume that Tesla can produce and sell the same number of trucks each year. The corporate tax rate for the current year is 22%. a. Elon Musk wants to finance this project with equity financing. Currently, the risk-free rate is 4% and the market risk premium is 7%. Tesla has a beta of 1.5. Calculate the appropriate cost of capital for the Cyber Truck project. b. Using the discount rate that you find in (a), calculate the break-even level of sales (number of truck sold per year) that leads to zero NPV

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investing In The Trump Era How Economic Policies Impact Financial Markets

Authors: Nicholas P. Sargen

1st Edition

3319760440,3319760459

More Books

Students also viewed these Finance questions

Question

What results did this produce?

Answered: 1 week ago

Question

Explain in detail how the Mughal Empire was established in India

Answered: 1 week ago