6. Tesla is planning production of its new car the Model X. It will require an...

6. Tesla is planning production of its new car the Model X. It will require an initial cost of $500 million. The

initial price of Model X will be $80,000 and the cost per unit will be $40,000. Tesla's cost of capital is 20

percent. Assume that the initial investment expenditure is required at t = 0 but sales begin in year t = 1.

(c) Now suppose that Tesla expects to sell 10,000 Model X cars per year for ever. If the price and cost of

production increase by 5 percent per year for ever, what is the NPV of the Model X at t = 0?

(d) Again suppose that Tesla expects to sell 10,000 Model X cars per year for ever. If now the price of

the Model X increases by 5 percent forever, but the cost of production increases by 7.5 percent forever,

what is the NPV of the Model X at t = 0?

Expert Solution

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jeff jeffy answered 1 year ago

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