GreenTech Inc. is a startup that has developed a new electric scooter that uses renewable energy. The scooter has a range of 50 miles and can be fully charged in 2 hours. The company has identified a market for its scooters in urban areas where traffic congestion is a problem and people are looking for more sustainable transportation options.

After an initial feasibility study of $40,000, GreenTech Inc. is considering investing $10 million in plant and equipment to start production of the new electric scooters. The company expects to sell the scooters for $2,500 each and estimates that it will sell 10,000 units in the first year until the end of the fifth year, in which it will develop a new scooter and stop production. The cost of producing each scooter is $1,500, and the company will incur an additional $500,000 in annual operating costs. The plant and equipment to manufacture the electric scooters are depreciated using the straight-line method over 10 years to $2 million, and is expected to be sold at the end of the project for $4 million.

Assuming a required rate of return of 12%, what is the NPV of GreenTech Inc.'s investment? Round your answer to the nearest dollar. 

What is the payback period? 

Should GreenTech invest in producing the new electric scooter? Why or why not?

Answer rating: 100% (QA)

To calculate the Net Present Value NPV we need to discount the cash flows associated with the investment The formula for NPV is NPVCFt1rtInitialInvestmentNPV1rtCFtInitialInvestment where CFtCFt is the ... View the full answer