In this fictitious case, you are a Financial Analyst in "Electric R Us$"($ERU$)$ 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 Us$"($ERU$)$ Motor Inc. plans to construct a Gigafactory that will be operationa

from January of $2024.$

Volumes

The operating capacity is to produce and sell $1,000,000$ units $(1$ million$)$ starting $2024$ with

growth rate of $5\%$ every year until $2030.$ You can assume that cash inflows happen at

are the overy year $($i$.$e$.,2024$ to $2030).$ Depending on the business scenarios, below

re the expected units of sales forecasted for $2024$

Revenue

ERU can sell these battery packs at $$20,000$ per unit starting $2024.$ Due to smarter battery

packs and lower cost per KWHr$,$ ERU's prices every reduce by $2\%,$ but because of raw

material inflation, ERU can increase prices by $2\%$ annually, which is the expected inflation

rates from $2024$ to $2030.$

Cost of Goods

The cost of manufacturing these battery packs $($per unit$)$ for $2024$ 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 $3\%$ annually until $2030.$

Buildings and Plant

ERU has to invest $$5$ Billion for land, buildings and plant facilities to get the plant

operational by $2024$ 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 $2024.$ Th

gain over its net book value.

Working Capita

The project must incur a working capital of $$100$ million at the start of $2024$ and is

recovered the the of $2030$ when the project ceases operation.

Sales, General Admin Expenses

Assume that ERU will incur incremental SGA expenses of $2\%$ as a percentage of

Revenue fom that period. It also incurred $$200$ million in $2023$ to study the opportunity of

setting up operations and the results from the study were positive.

The marginal tax rate of ERU is $30\%$ and ERU uses $9\mathrm{.}6\%$ 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?