CT4 Option 1

Option #1

Question 1: Scenario Analysis

Consider the example company and electric scooter project. What is the NPV of the electric scooter project under the following scenario?

Market size: 1.1 million

Market share: 0.1

Unit price: ¥400,000

Unit variable cost: ¥360,000

Fixed cost: ¥2 billion

Question 2: Operating Leverage

Operating leverage is often measured as the percentage increase in pretax profits after depreciation for a 1% increase in sales.

  1. Calculate the operating leverage for the electric scooter project assuming unit sales are 100,000
  2. Now show that this figure is equal to 1 + (fixed costs including depreciation divided by pretax profits).
  3. Would operating leverage be higher or lower if sales were 200,000 scooters?

Question 3:

You are the judge in a settlement case. You need to compute the value of a piece of land in Denver Co. The valuation is subject to the following conditions:

  1. The settlement will take place at the end of 2019
  2. The current appraised value of the land on 1/1/2018 is $500.000
  3. The piece of land has a building on it that is uninhabitable. It takes one year to bring the building down at a cost of $100,000. That                      money must be paid now.
  4.     The land can be rented in 2019 at a net proceeds of 40,000
  5. While rented the land cost $20,000 in property taxes
  6. Your real estate adviser notes that selling prices of comparable lands in Denver have declined, in real terms, at an average rate of 3% per         year over the last 5 years.
  7. The cost of capital is 10%
  8. The sale of the land at the end of 2019 is subject to a 10 % commission

Your paper should be three pages in length (excluding cover page and references) and formatted according to APA 7 Standards.

Plus Excel Spreadsheet

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