Question: Volvo is looking to introduce a new hybrid car in
Volvo is looking to introduce a new “hybrid” car in the US. Their analysts estimate that they will sell 20,000 of these new cars per year. The unit cost per car is $18,000 and they plan on selling the vehicle for $22,000. If the current sales of Volvo’s sedan, which costs $15,000 to produce and sells for $20,000, go down from 25,000 units per year to 18,000 units, is this a worthwhile move for Volvo? Calculate the amount of the erosion cost and the incremental cash flow that will result if they go ahead with the launch.
Relevant QuestionsR.K. Boats Inc. has just installed a new hydraulic lift system which is being categorized as a 5-year class-life asset under MACRS. The total purchase cost plus installation amounted to $750,000. RKB has always used ...When calculating the cost of capital, why is it that the company only adjusts the cost of debt for taxes?Stan is expanding his business and will sell common stock for the needed funds. If the current risk-free rate is 4% and the expected market return is 12%, what is the cost of equity for Stan if the beta of the stock isa. ...Ashman Motors is currently an all-equity firm. It has two million shares outstanding, selling for $43 per share. The company has a beta of 1.1, with the current risk-free rate at 3% and the market premium at 8%. The tax rate ...T.J. Enterprises is trying to determine the weights to be used in estimating their cost of capital. The firm’s current balance sheet and market information regarding the price and number of securities outstanding are ...
Post your question