To further increase the efficiency of manufacturing its cars, Tesla is installing what they call...
80.2K
Verified Solution
Link Copied!
Question
Finance
To further increase the efficiency of manufacturing its cars, Tesla is installing what they call a Giga Press. This machine is able to produce large parts of the car structure in one go and will make the production process fast and of highest quality. The machine costs $800 million and will be depreciated over its useful 10-year life down to zero. There are only variable cost benefits from using this machine. Specifically, the company is saving $500 per car in variable costs. Annual production output Is 500,000 cars for the next 10 years. Assuming a 25% tax rate, a discount rate of 10% and ignoring any working capital and salvage value considerations, which of the following statements is most correct? a. The variable cost benefits of $500 per car are not sufficient to compensate for an $800 million purchase price of the machine. b. It's a very good financial decision to purchase and utilize the Giga Press. Its NPV is more than $470 million. C. The NPV of the project is $352 million, with an IRR of 19%
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
