automotive industry by introducing three innovative electric vehicles - Terra SUV, Electra Sedan, and Zenith Hatchback. With a commitment to sustainability, the company aims to address the environmental challenges posed by traditional fuel-powered vehicles. This case study will explore the financial aspects of the project, emphasising the concepts of time value of money and capital budgeting. Market Gap Assessment EcoDrive's commitment to addressing environmental challenges, particularly carbon emissions from traditional vehicles, aligns with the UN Sustainability Development goals. The prototypes boast impressive features, including batteries with a range of up to 2,500kms with relatively minimal degradation over a decade. The diverse vehicle lineup caters to urban and suburban consumers, families, and daily commuters. EcoDrive has invested $300 million in research and development of EVs, resulting in the creation of three prototypes: SUV, Sedan, and Hatchback. These vehicles address the market gaps identified by EcoDrive. Project's Strategy To assess the financial viability, EcoDrive has commissioned a comprehensive feasibility study. The project spans 10 years, targeting the Australian and Malaysia markets, utilising a strategic mix of equity and debt financing. Initial Investment: Two locations: Melbourne, Australia, and Kuala Lumpur, Malaysia. Land and Building: $40 million per location. Machinery and fit out: $80 million per location. Each facility requires two upgrades/updates during the project's life, with the first at the start of year 5 and is estimated to cost 40% of the original machinery and fit-out cost (in today's dollars/value in year 5), and the next at the start of year 8, also estimated at 40% of the original machinery and fit- out cost (in today's dollars/value in year 8). EcoDrive expects inflation for this capital equipment to be 2.5% per year between year 0 and year 5, and 3% per year between year 6 and year 8. The updates will be added to existing equipment. The expected selling price of the equipment at the end of the project is estimated to be $15,000,000 and will have a book value of zero ($0.00). Depreciation: Depreciation will use straight-line method over a 10-year period and will only apply to machinery and fit out. Ignore Depreciation for all Buildings. Machinery and Fit out Depreciation Schedule for both location - Straight Line Method Year Initial invest 0 1 2 3 4 $ $ $ $ $ 5 $ 6 7 8 9 10 Total $ $ $ $ $ $ - 16,00 160,0 16,00 16,00 16,00 16,00 16,00 16,00 16,00 16,00 16,00 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 00,00 S $ $ es $ 0 $ $ $ $ $ $ 11,77 11,77 11,77 11,77 11,77 11,77 70,64 4,004 4,004 4,004 4,004 4,004 4,004 4,025 Financial Aspects The capital structure comprises 70% equity and 30% debt. Comparable operations are seeing equity holders demanding 13% in returns. EcoDrive expects the price they pay for equity will be 15%, given the current market conditions. The debt financing, facilitated by KPMG's Matt McKeon, comes at an 11% interest rate, slightly above market rates but deemed the best available. With these financial parameters, EcoDrive aims to strike a balance between investor returns and affordability for consumers. Given the information above, you have concluded that you must meet a weighted average capital cost (WACC) of 13.80% to satisfy both equity and debt holders. This means the required rate of return or discount factor is 13.80%. ment First upgra de $ $ - Secon $ d upgra S S $ $ $ es $ $ $ $ $ 25,73 25,73 25,73 77,19 1,545 1,545 1,545 4,634 Downlo invest ment Page < First es ACC211 Task 1: Project evaluation (Case Study) upgra de Required: Answer all 5 questions listed below. Secon $ $ $ S $ $ $ $ $ 11,77 $ 11,77 $ $ 11,77 4,004 4,004 $ $ $ Question 1. d 1 16,00 16,00 16,00 16,00 16,00 16,00 16,00 16,00 16,00 16,00 160,0 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 $ 11,77 11,77 11,77 70,64 4,004 4,004 4,004 4,004 4,025 $ $ $ $ $ 25,73 25,73 25,73 77,19 00,00 O $ $ St Create an Excel Spread Sheet (give sheet 1 name- Base Case) detailing the inputs and calculations, with an atheistically pleasing, logical and easy-to-follow presentation, and calculate NPV and IRR. (Calculation + Excel functionality, presentation, and layout 54 + 10 = 64 marks) upgra 1,545 1,545 1,545 4,634 de Total $ $ $ $ $ es $ es $ $ $ S S $ 16,00 16,00 0,000 0,000 16,00 16,00 16,00 27,77 27,77 27,77 53,50 53,50 53,50 307,8 0,000 0,000 0,000 4,004 4,004 4,004 5,549 5,549 5,549 38,65 9 1. Calculate sales revenue, variable costs (Labour, Vehicle parts, Tesla charging, marketing, sales commission), fixed cost, Earning Before Interest and Tax (EBIT), and net profit after tax. [Table 1: Projected statement of profit and Loss] 2. Calculate capital investment and net working capital (NWC) for each year. [Table 2 Projected Capital requirement] 3. Calculate operating Cash flows (OCF) considering EBIT, depreciation, and taxes. [Table 3: Projected operating cash flow] 4. Calculate Free Cash flows considering OCF, projected capital requirement, sale of asset and tax effect [Table 4: Projected total cash flow and value] 5. Calculate the Net Present Value (NPV) of the project using discounted Free cash flows using the WACC (r). 6. Calculate the Internal Rate of Return (IRR) Details of the proposed project Depre ciation Sale price/Salvage Values (End of 10 Years): Land and Building in both locations will be sold at the end of year 10. Projected annualised growth rate for Years 1-10: 7% (disposal) which means facility price increase by 7% (Compounding) every year. EcoDrive EV-Annual Sales Volume (Units) Unit Sales Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Terra SUV 5,000 6,000 7,500 8,500 9,000 10,000 11,000 12,000 13,000 15,000 4,000 5,000 6,500 7,500 8,000 9,000 10,000 11,000 12,000 13,500 Electra Sedan Zenith Hatchback 6,000 7,500 9,000 10,500 12,000 14,000 16,000 18,000 20,000 22,500 Total Sales Volume 15,000 18,500 23,000 26,500 29,000 33,000 37,000 41,000 45,000 51,000 Selling Price (Per Unit): Terra SUV: Electra Sedan: $35,000 (Years 1-5), $38,000 (Years 6-10) $40,000 (Years 1-5), $42,000 (Years 6-10) Zenith Hatchback: $32,000 (Years 1-5), $35,000 (Years 6-10) Cost (Per Unit): Vehicle parts: . Terra SUV: $18,000 (Years 1-5), $20,000 (Years 6-10) Electra Sedan: $20,000 (Years 1-5), $22,000 (Years 6-10) Zenith Hatchback: $14,000 (Years 1-5), $16,000 (Years 6-10) EcoDrive has secured a deal with Tesla for the use of their charging stations and proprietary charging mechanism. The cost of this service is $950 per unit and is the same for each vehicle produced. abour cost: he cost of labour is estimated to be 25% of the sales price of each vehicle. The production capacity is set 0,000 EVs annually based on a standard workday schedule from Monday to Friday, 9 am to 5 pm. In th case of exceeding this production goal, the production line workers will have expanded working hours fro 3 am to 5 pm, including 8 am to 1 pm on Saturdays, with a 15% increase in labour cost added as a loadir charge. This should increase the overall production capacity to 52,000 EVs. Note: It is assumed that the normal ordinary labour hours can produce a total of 30,000 vehicles each yea with the ordinary normal rate cost of labour being $125,000,000 for each vehicle type, resulting in a tota ordinary labour cost of $375,000,000. Any labour cost above $125,000,000 for any vehicle type in any yea incurs an extra 15% loading charge. Annual Fixed Cost: $25,000,000 Marketing Cost (as a Percentage of Sales Revenue): 8% of Sales Revenue Sales Commission (as a Percentage of Sales Revenue): 3% of Selling Price Corporate Tax rate: 25% Page 2 of 7