Intro

It is the end of $2024.$ You're a financial analyst working for Tesla Motors. The company is

considering producing the new Model Z car and is predicting the following sales $($in $

million$).$ Assume all cash flows occur at the end of the year.

COGS and SG&A are expected to add up to $70\%$ of sales. After $2029,$ production will

end and the factory will shut down.

To start production at the beginning of $2026,$ Tesla has to invest $$200$ million now and

$$100$ million in $2025$ to build a new factory. After completion at the end of $2025,$ the

factory can be depreciated straight to zero over $10$ years. The factory is expected to be

worth $$100$ million at the end of $2029.$

Net working capital consists mainly of inventory of car components, minus some current

liabilities. Net working capital is expected to be always $15\%$ of sales.

Tesla has a beta of $1\mathrm{.}5.$ Its target capital structure weight for equity is $90\%$ and the

expected return on the S&P $500$ is $5\mathrm{.}5\%.$ The company also has $$1\mathrm{.}2$ bn in outstanding

bonds and an average yield on its bonds of $0\mathrm{.}085.$ The yield on Treasury bills is $2\%.$

Tesla's marginal tax rate is $31\%.$

$1.$ What is net capital spending for $2029($in $ million$)?$ Include the after$-$tax salvage value of the factory.

$2.$ Extend the spreadsheet to find the change in net working capital for each year. What is the change in net working capital for $2029($in $ million$)?$

$3.$ Extend the spreadsheet to find the cash flow from assets for each year. What is the CFA for $2029($in $ million$)?$

$4.$ What is the NPV of the project $($in $ million$)?$