Course Project Overview

Scenario and Assignment Details

Elon Motors produces electric automobiles. In recent years, they have been making all components of the cars, excluding the batteries for each vehicle. The company's leadership team has been considering the ways to reduce the cost of producing its cars. The leadership team considered various options and believes Elon Motors could reduce the cost of each car if it produces the car batteries instead of purchasing from the current vendor, Avari Battery Company.

Currently, the cost of each battery is $325 per unit. Elon Motors feels that it could greatly reduce the cost if the production team makes each battery. To produce these batteries, the company will need to purchase specialized equipment. Cost of the new equipment is $1,570,000 with salvage value of $70,000 and a useful life of 12 years.

Currently, Elon Motors purchases 3,000 batteries per year, and expects that the production will remain the same for the coming 12-year period. To make batteries, Elon Motors has provided below the relevant data about the proposed project.

• Purchase of direct materials at a cost of $125 per battery produced.
• Employing three production workers to make the batteries. Each worker likely works for 2,080 hours per year and makes $25 per hour. In addition, health benefits will amount to 20% of the workers' annual wages.
• The variable manufacturing overhead costs are estimated to be $25 per unit.
• Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.
• Cost of capital (hurdle rate) has been determined to be 10% for all new projects, and the current tax rate of 30% is anticipated to remain unchanged.
• The pricing for the company's products as well as number of units sold will not be affected by this decision.
• Elon Motors uses straight-line method to depreciate the equipment.

Required Items

Based on the above information and using the providedExcel TemplateLinks to an external site.Open this document with ReadSpeaker docReader, calculate the following items for the proposed equipment purchase.

1. Annual cash flows over the expected life of the equipment
2. Payback period
3. Accounting rate of return
4. Net present value
5. Internal rate of return
6. Modified Internal rate of return

Grading Criteria and Submission

The following list, with its five sections and mechanics, shows the Course Project grading criteria. Each section, including mechanics, is worth a total of 20 points each. The entire Course Project is worth 120 points total.

Section	Points
Section 1: Calculation of the annual cash flows over the life of the equipment	20
Section 2: Calculation of the payback period and accounting rate of return	20
Section 3: Calculation of the net present value	20
Section 4: Calculation of the IRR and modified IRR (MIRR)	20
Section 5: The Written Proposal	20
Mechanics: Use excel formulas throughout the worksheet to determine results. In addition, the Excel template is properly formatted and presented without unnecessary notations. For the written portion, rules of grammar, usage, and punctuation are followed.	20
Total	120

This Course Project is an individual assignment and is due at the end of Week 8. Submit your assignment to theWeek 8 Course Project