Determine the NPV for the Electrobicycle project. Use the annual project cash flow from the table above. For the required rate of return use 6%

 Calculate the NPV of the Electrobicycle project.

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

Based on your concluded NPV, should the company invest in this project to build Electrobicycles?

 

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Numbers in $000's Revenues After-tax earnings After-tax earnings Plus: Depreciation Less: Cost of plant, equipment Less: Working capital Plus: Recovery of working capital Plus: Salvage value Annual project cash flow Note: n/a = not applicable Today ($2,000) ($1,000) Year 1 $1,000 ($500) ($500) $400 $0 ($200) n/a n/a ($300) Year 2 $1,500 $100 Project Cash Flow $100 $400 $0 ($200) n/a n/a $300 Year 3 $3,000 $300 $300 $400 $0 ($200) n/a n/a $500 Year 4 $6,000 $600 $600 $400 $0 ($200) n/a n/a $800 Year 5 $12,000 $1,200 $1,200 $400 $0 ($200) $2,000 $600 $4,000 Numbers in $000's Revenues After-tax earnings After-tax earnings Plus: Depreciation Less: Cost of plant, equipment Less: Working capital Plus: Recovery of working capital Plus: Salvage value Annual project cash flow Note: n/a = not applicable Today ($2,000) ($1,000) Year 1 $1,000 ($500) ($500) $400 $0 ($200) n/a n/a ($300) Year 2 $1,500 $100 Project Cash Flow $100 $400 $0 ($200) n/a n/a $300 Year 3 $3,000 $300 $300 $400 $0 ($200) n/a n/a $500 Year 4 $6,000 $600 $600 $400 $0 ($200) n/a n/a $800 Year 5 $12,000 $1,200 $1,200 $400 $0 ($200) $2,000 $600 $4,000

Answer rating: 100% (QA)

Answer To get the value of the project we need to find its Net present value by discounting each yea... View the full answer