Reference no: EM13315134

Otobai is considering still another production method for its electric scooter. It would require an investment of ¥15.10 billion in addition to the initial investment of ¥15.10 billion but would reduce variable costs by ¥42,000 per unit. The cost of capital was assumed to be 11%. The total investment can be depreciated on a straight-line basis over the 10-year period, and profits are taxed at a rate of 50%.

Consider the following estimates for the scooter project.

Market size 1.02 million
Market share .1
Unit price ¥ 385,000.0
Unit variable cost ¥ 310,000.0
Fixed cost ¥ 3.02 billion

Assume investment is depreciated over 10 years straight-line and income is taxed at a rate of 50%.
a. What is the NPV of this alternative scheme? (Do not round intermediate calculations. Enter your answer in billions. Round your answer to 2 decimal places.)

Net present value ¥ billion
b. Calculate the break-even point. (Do not round intermediate calculations. Round "PV Factor" to 6 decimal places and the final answer to the nearest whole number.)

Break-even point
d. Consider the following Preliminary cash-flow forecasts for Otobai's electric scooter project (figures in ¥ billions). Calculate the variable cost per year at which the electric scooter project would break even. Assume that the initial investment is ¥15.10 billion. Investment is depreciated over 10 years straight-line and income is taxed at a rate of 50%. Use Table 10.1. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Year 0 Years 1-10
1. Investment 15.1
2. Revenue 39.27
3. Variable cost 31.00
4. Fixed cost 3.02
5. Depreciation 1.51
6. Pretax profit 3.74
7. Tax 1.87
8. Net profit 1.87
Operating cash flow 3

Net cash flow -15 3

Variable cost per year ¥

e. Calculate the DOL. Consider fixed cost assuming the additional investment of ¥15.10 billion. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

DOL