GM is considering a project to introduce a high-end sports car to its product line.
As a business analyst, you are tasked to perform a capital budgeting analysis. Below
are the information associated with this project.
 GM has completed a $1 million marketing survey to assess the attractiveness
of the sports car.
 The project has an estimated life of 4 years.
 Expected selling price is $26,000/car in Year 1.
 Upfront R&D costs are $1.5 million
 Upfront new equipment costs $7.5 million; 5-year straight-line depreciation.
 Annual overhead expenses are $2.8 million.
 Expected manufacturing cost is $11,000/car in Year 1.
 The equipment is to be housed in an existing empty factory. The factory could
have been rented out for $200,000/year.
 GM expects to sell 100, 125, 50 and 50 units of the sports car in Years 1
through 4, respectively.
 20% of the sports car units sold come from customers who would otherwise
have bought an existing old car model made by GM.
 The existing old car model sells for $10,000 in Year 1 and costs $6,000 to make.
 However, if GM does not introduce the sports car, those customers would have
bought sports cars from an automaker competitor.
 Prices and production costs of all cars (new and old) will fall by 10% per year.
 Overhead expenses and factory rentals will rise by 4% per year.
 No working capital is needed in this project.
 This project is as risky as the average project of GM.

3. Find the NPV of this project using Excel. Correctly account for
(a) Incremental sales
(b) COGS
(c) Depreciation expenses
(d) Overhead expenses, and
(e) Cash ow adjustments.
(f) Finally, compute NPV of this project.