You have been tasked by the management team of the Tesla to evaluate the desirability of hypothetical expansion of one of firm's production facilities used to manufacture battery walls. Important details concerning this proposal are provided below: The initial cost of the investment is expected to be $230 million. This cost will be depreciated using the straight line method over the 6 year project life. As a result of the expansion, the firm's sales are expected to increase by 15,000 units in the first year after the construction has been completed. This sales volume is expected to grow by 2% p.a. over the 6 year life of the project. In year 1, the average price for each unit is expected to be $7,500. This price is expected to reduce by 5% p.a. over the life of the project.

The average cost of sales for each unit is expected to be 35% of sales revenue. The firm will appoint a new team to drive sales. The staffing costs associated with this team are expected to be $500,000 in year 1 and will grow by 1.5% p.a. over the life of the project. Beyond these costs, sales team members will also receive a 5% commission on revenue for each unit sale. In years 3 and 5, the new production facility will undergo a significant maintenance service. The total cost of these services will be $900,000 and $980,000, respectively. The firms tax rate is 21%. The firm requires a 14% required rate of return on all potential investments. All calculations must be performed in Excel. Required In relation to the above proposal: 1. Calculate the annual after tax cash flows (1 mark) and annual after tax profit (1 mark). 2. Calculate the payback period (0.5 mark). 3. Calculate the net present value (0.5 mark). 4. Calculate the internal rate of return (0.5 mark). 5. Calculate the accounting rate of return based on the average and initial investment (0.5 mark). 6. Provide an overview of key environmental factors that the firm should consider when evaluating the proposal (2 marks). 7. Based on an assessment of the above and other strategic factors, discuss whether the firm should go ahead with the proposal (2 marks). 8. Discuss how sensitive your recommendations are to changes in assumptions in regards to the financial impact of the new capital investment. In your discussion, include examples which illustrate how changes to at least two assumptions impact the financial analysis (2 marks). Ensure that your answers for the above are discussed and supported by relevant calculations/ workings.

You have been tasked by the management team of the Tesla to evaluate the desirability of hypothetical expansion of one of firm's production facilities used to manufacture battery walls. Important details concerning this proposal are provided below: The initial cost of the investment is expected to be $230 million. This cost will be depreciated using the straight line method over the 6 year project life. As a result of the expansion, the firm's sales are expected to increase by 15,000 units in the first year after the construction has been completed. This sales volume is expected to grow by 2% p.a. over the 6 year life of the project. In year 1, the average price for each unit is expected to be $7,500. This price is expected to reduce by 5% p.a. over the life of the project. The average cost of sales for each unit is expected to be 35% of sales revenue. The firm will appoint a new team to drive sales. The staffing costs associated with this team are expected to be $500,000 in year 1 and will grow by 1.5% p.a. over the life of the project. Beyond these costs, sales team members will also receive a 5% commission on revenue for each unit sale. In years 3 and 5, the new production facility will undergo a significant maintenance service. The total cost of these services will be $900,000 and $980,000, respectively. The firm's tax rate is 21%. The firm requires a 14% required rate of return on all potential investments. All calculations must be performed in Excel. Required In relation to the above proposal: 1. Calculate the annual after tax cash flows (1 mark) and annual after tax profit (1 mark). 2. Calculate the payback period (0.5 mark). 3. Calculate the net present value (0.5 mark). 4. Calculate the internal rate of return (0.5 mark). 5. Calculate the accounting rate of return based on the average and initial investment (0.5 mark). 6. Provide an overview of key environmental factors that the firm should consider when evaluating the proposal (2 marks). 7. Based on an assessment of the above and other strategic factors, discuss whether the firm should go ahead with the proposal (2 marks). 8. Discuss how sensitive your recommendations are to changes in assumptions in regards to the financial impact of the new capital investment. In your discussion, include examples which illustrate how changes to at least two assumptions impact the financial analysis (2 marks)