A company wants to enter the electric car business. To enter the business, it will need to make an initial investment of $100 million into purchases of production facilities and equipment. The production facilities and equipment are expected to have a ten-year life and will be depreciated on a straight-line basis over that period, so that the book value of the production facilities and equipment equals zero at the end of year ten. The company plans to operate the business only for six years, after which it plans to sell its production facilities and equipment for $50 million. For the six years that the company expects to operate in the electric car business, it expects to generate cash revenues of $150 million in the first year, which it expects to grow at a rate of 7% each year after the first year. The cash operating costs of running the electric car business, excluding depreciation expenses, are expected to be 30% of revenues. The company expects an increase in the net working capital of $20 million in year zero and a decrease in the net working capital of $20 million in year six when the business is sold. The corporate income tax rate is 40% and the discount rate is 10%. 

What is the NPV of the investment, based on the information above? (Round to the nearest two digits)

Answer rating: 100% (QA)

SOLUTION To calculate the net present value NPV of the investment we need to calculate the present value of all cash inflows and outflows associated w... View the full answer