Determine if Tesla should do the Cheetah project. Use the following capital budgeting techniques.

1. Payback period

2. Net present value

3. Internal rate of return

Now lets test the sensitivity of the project to some changes in the assumptions.

4. Take the cost of capital you previously computed (in week 8) and add 4% to the value (for example, if WACC was 12%, make it 16%) and recalculate NPV. What happens to IRR? Is the project still desirable?

5. Suppose the cost of goods sold percentage rises by 2.5%. Compute the payback period, NPV and IRR. Use the original WACC you computed.

6. How sensitive is NPV to the changes made in 4 and 5?

Suppose Tesla (ticker symbol - TSLA) has decided to introduce an electric minivan, the Model MV. Before they launch the Model MV, they conducted an analysis to see if the Model MV would be a desirable investment. The company estimated that it would sell 500,000 Model MVs per year at a price of $65,000 for the next six years. After the first year of sales, the quantity sold will increase by 4% per year for the remaining life of the project. The initial capital outlay is determined to be $5.5 billion and a $1.5 billion outlay in net working capital (NWC) would also be required. Assume that there is a one-time investment in NWC and that this will be recovered at the end of the project. Assume that the equipment used will be depreciated using the MACRS 7-year schedule and that the equipment has a salvage value of zero. At the end of year 6, the equipment will be sold for 120% of its book value. Also, assume that the tax rate is 25%.

Using information from Teslas financial statements (you may want to use Morningstar.com or some other online site) estimate the operating cash flows from the project. Make any simplifying assumptions that are necessary to produce the estimate.