You are working for the Volkswagen Group that is considering establishing a two-year project in New Zealand with a 30 million initial investment. The project is expected to generate cash flows of NZ$12 million in Year 1 and NZ$30 million in Year 2, excluding the salvage value. All cash flows are remitted to the parent. Assume no taxes.

Your supervisor, Walter White, has a given you a task to figure out the break-even salvage value for this project. Your team has forecasted a stable exchange rate of 0.60 per NZ$ over the next two years.

To help you figure out the required rate of return, you colleague, Jesse Pinkman, has handed you an Excel file with information on 5 different car manufacturers.

You need to make a quick presentation for Walter White. You get a maximum of 10 power point slides to convince Mr. White that your estimated required rate of return for Volkswagen Group and the break- even salvage value for this project is accurate. Assume that the CAPM is the true model for this exercise.

• What is the implied required rate of return for Volkswagen?
• Did you add a country (Asia-Pacific) premium? Why/why not?

• 	Total Revenue	Capital Expend	EBITDA	Projected Growth Rate	Market Value of Equity	Historical Debt to Value	Total Debt	Cash	Equity Beta	Debt Beta
  Auto Manufacturers
  Nissan Motor	82,101	11,432	10,879	6.2%	40,013	0.564	51,796	6,698	0.75	0.15
  Peugeot	53,607	2,428	3,318	7.0%	12,230	0.642	21,914	10,521	1.25	0.06
  Renault	41,055	2,703	3,967	8.9%	23,096	0.611	36,299	14,049	0.91	0.00
  Tata Motors	33,811	4,100	5,647	5.5%	16,701	0.396	10,952	7,125	0.88	0.15
  Volkswagen	202,458	16,613	23,048	3.5%	52,916	0.724	139,021	34,143	0.75	0.08