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In this fictitious case, you are a Financial Analyst in Electric R Us ( ERU ) Motor Inc. Your responsibilites include evaluating the financial
In this fictitious case, you are a Financial Analyst in "Electric R UsERU Motor Inc. Your
responsibilites include evaluating the financial and strategic implications of Corporat
Investment decisions.
Please evaluate the case study with the below given information
For your meeting with Ford Finance Interviewers:
Review the case study and prepare Executive summary that addresses the
strategy.
Make appropings pertaining to the summary
Make appropriate assumptions that is relevant for arriving at the decision.
"Electric R UsERU Motor Inc. plans to construct a Gigafactory that will be operationa
from January of
Volumes
The operating capacity is to produce and sell units million starting with
growth rate of every year until You can assume that cash inflows happen at
are the overy year ie to Depending on the business scenarios, below
re the expected units of sales forecasted for
Revenue
ERU can sell these battery packs at $ per unit starting Due to smarter battery
packs and lower cost per KWHr ERU's prices every reduce by but because of raw
material inflation, ERU can increase prices by annually, which is the expected inflation
rates from to
Cost of Goods
The cost of manufacturing these battery packs per unit for are as follows:
This does not include any fixed costs related to building and plant. Due to efficiencies of
scale and newer technology, costs are expected to reduce annually until
Buildings and Plant
ERU has to invest $ Billion for land, buildings and plant facilities to get the plant
operational by beginning.
Buildings and plant facilities are depreciated on an accelerated basis between the time
he plant is operational. Assume all cash outflows happen at the beginning of Th
gain over its net book value.
Working Capita
The project must incur a working capital of $ million at the start of and is
recovered the the of when the project ceases operation.
Sales, General Admin Expenses
Assume that ERU will incur incremental SGA expenses of as a percentage of
Revenue fom that period. It also incurred $ million in to study the opportunity of
setting up operations and the results from the study were positive.
The marginal tax rate of ERU is and ERU uses as the cost of capital to assess
viability of its capital projects.
Questions
Based on your evaluation of this investment, recommend the management whether
they should proceed and accept or reject the decision
What is the Discounted Payback Period for this project?
What is the hurdle rate that ERU can accept before revising their decision?. I have to submit with in mins. I will give likes to your answer.
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