Reference no: EM13917681
You work for Toyota. After the recent problems with car recalls, you have been assigned the task of developing a new exciting product line. Your idea is the Toyota Toy-boat-a: an amphibious 4x4 that can be used across jungle, desert, swamp, and river equally. You have completed most of the product research and now need to set the sales price. Specifically, you need to estimate the minimum price at which the Toy-boat-a should be sold for so that the product line has a positive NPV. You have estimated the following:
• You expect the car to sell 10,000 units each year for ten years. After this there are no more sales.
• Each car will cost $22,500 to produce (excluding depreciation)
• There will be initial capital expenditure of $1,250 million today, which is depreciated straight line over ten years to zero. The investment in capital expenditure will be worthless at the end of ten years. • The product line will not require any net working capital.
• The tax rate is 35%
• The discount rate is 8%.
What is the minimum sale price for the Toy-boat-a so that the product line has a positive NPV?
HINT: First, calculate the Operating Cash Flow required, and then calculate the price. Report your answer to the nearest cent.
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