GM is considering building an electric Hummer retailing at $150,000 for the basic model without self-driving technology that is capable of travelling as far as 1 km on 1 charge at an amazing speed of 100metres/hr, where you can enjoy travelling 1km for a full 10 hours. Equipment to produce the gasoline Hummer was bought 10 years ago and at that point in time was expected last for 20 years. The new electric Hummer equipment would cost $100,000,000. The old gasoline Hummer equipment cost $40,000,000 10 years ago and had been expected to have a salvage value of $0 (zero) in twenty years. The new equipment is expected to last for 10 years at which point it would be sold for $40,000,000 to Li Auto. The old equipment could be currently sold for $3,000,000 to Tata. GM also has other equipment to build cars in the same asset pool. The equipment fall in an asset class with an annual 5% depreciation or CCA rate.

The electric Hummer would increase annual pretax revenues by $30,000,000 as celebrities love electric and Hummer. These pretax revenues would increase by 2% each year for the next 9 years. A newer technology from the modern stone-age Bedrock where the Flintstones live will replace electric vehicles after that. There would be an additional cost of $10,000,000 incurred annually to maintain the equipment and this cost would increase by 2% each year for the next 9 years.

We assume there are no changes in working capital required. The weighted average cost of capital is 12% and the tax rate is 40%.

1)What is the NPV of the electric Hummer product line doing the calculations by hand (with a calculator)? All working steps must be clearly written down in your calculation of NPV.

2)Adjust the formulas in the Excel spreadsheet Use Solver or GoalSeek to get IRR-lecture 5 6 (please download from eclass) to calculate a growing annuity of revenues and costs. Then input the numbers into the Excel spreadsheet to check your NPV calculation and then find the IRR of the electric Hummer project using Solver.

Submit the handwritten NPV calculation in this question