Find variable cost per unit at which electric scooter breaks

Assignment Help Financial Econometrics

Reference no: EM13328127

Otobai is considering still another production method for its electric scooter. It would require an investment of $15.45 billion in addition to the initial investment of $15.45 billion but would reduce variable costs by $49,000 per unit. The cost off capital was assumed to be 13%. 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 1.09 million

Market share 0.1

Unit price $420,000.0

Unit variable cost $345,000.0

Fixed cost $3.09 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 $15.45 billion. Investment is depreciated over 10years straight-line and income is taxed at a rate of 50%.

Year 0 Years 1-10

1. Investment $15.4

2. Revenue 45.78

3. Variable Cost 34.50

4. Fixed Cost 3.09

5. Depreciation 1.54

6. Pretax Profit 6.64

7.Tax 3.32

8. Net Profit 3.32

9. Operating Cash Flow 3

10. Net Cash Flow -15 3

e.) Calculate the DOL. Consider fixed cost assuming the additional investment of $15.45 billion.

Reference no: EM13328127

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