Roderick Electric Scooter, Inc., staff has come up with the following estimates
ID: 2721737 • Letter: R
Question
Roderick Electric Scooter, Inc., staff has come up with the following estimates for the electric scooter project: (SEE BELOW PHOTO)
Conduct sensitivity analysis. What are the principal uncertainties in the project? Assume an initial investment of $16 million to be depreciated over a period of 10 years to a salvage value of zero. Corporate Tax rate is 34%. Assume a cost of capital of 10%.
3. Roderick Electric Scooter, Inc, staff has come up with the following estimates for the electric scooter project: Market size Market share Unit price Unit variable cost Fixed cost Pessimistic 2.5 million 0.4 $300 $350 $5 million Expected 3.0 million 0.1 $375 $300 $3 million Optimistic 3.2 million 0.16 $400 $275 $1 milliorn onduct sensitivity analusis What are the nrincinal uncertainties in the nroiect? AssumeExplanation / Answer
1. The Senstivity analysis of the NPV is as shown below
2. Cost of debt after tax= Rd =12*(1-0.34) = 7.92%
Cost of equity = Re = 20%
Total debt = 10,000,000 * 1.10 = 11,000,000
Total equity =1,000,000 * 25 = 25,000,000
Weight of debt = Wd = 11/(25+11) = 11/36 =0.3056
Weight of equity = We =1-0.3056 = 0.6944
Weighted average cost of capital = WACC = WeRe + WdRd = 0.6944 * 20 + 0.3056* 7.92 = 16.31%
Pessimestic Expected Optimisc Revenue 750000000 1125000000 1280000000 Variable Cost 875000000 900000000 880000000 Fixed Cost 5000000 3000000 1000000 Depreciation 1600000 1600000 1600000 Profit before tax -131600000 220400000 397400000 Tax at 30% 0 74936000 135116000 Net Profit -131600000 145464000 262284000 Add back dperecaition 1600000 1600000 1600000 Cash flow -130000000 147064000 263884000 PV of this for 10 years $ -652,439,921.36 $ 738,080,189.19 $ 1,324,372,740.06 NPV with Initial investment $ -668,439,921.36 $ 722,080,189.19 $ 1,308,372,740.06Related Questions
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