Otobai is considering still another production method for its electric scooter. It would require an investment of $15.30 billion in addition to the initial investment of $15.3 billion but would reduce variable costs by $46,000 per unit. The cost off capital was assumed to be 12%. The total investment can be depreciated on a straight-line basis over the 10-year period, and profits are taxed at a rate of 50%.
Consider the following estimates for the scooter project
Market size 1.06 million
Market share 0.1
Unit price $405,000.0
Unit variable cost $330,000.0
Fixed cost $3.06 billion
Assume investment is depreciated over 10 years straight-line and income is taxed at a rate of 50%.
a.) What is the NPV of this alternative scheme?
b.) Calculate the break-even point.
c.) Consider the following Preliminary cash-flow forecasts for Otobai's electric scooter project (figures are in $billions). Calculate the variable cost per unit at which the electric scooter project would break even. Assume that the initial investment is $15.30 billion.
Investment is depreciated over 10years straight-line and income is taxed at a rate of 50%.
Year 0 Years 1-10
1. Investment $15.30
2. Revenue 42.93
3. Variable Cost 33.00
4. Fixed Cost 3.06
5. Depreciation 1.53
6. Pretax Profit 5.34
7.Tax 2.67
8. Net Profit 2.67
9. Operating Cash Flow 3
10. Net Cash Flow -15 3
e.) Calculate the DOL. Consider fixed cost assuming the additional investment of $15.30 billion.