You manage at Tesla. Tesla is considering the development of an entirely new electric vehicle. The engineers recommend two mutually exclusive models: The A1 model and the A2 model. The investment outlay for the A I model has been computed to be $480,000, and the outlay for the A2 model has been computed to be S400,000. This initial outlay is depreciated on a straight line basis over a 20-yr period (no salvage value). The firm's cost of capital is 14%. The engineering group has estimated that the annual operating costs would be S480,000 for A1 and for A2. Furthermore, it is estimated that the incremental annual sales would be for A1 and for A2. These figures are expected to remain constant Over the next 20 years and are already adjusted for inflation. The corporate tax rate is 50%. Your management team must make a recommendation to senior management about which model should be adopted. l: Which model do you recommend (A I or A2)? Make sure to justify your choice by including an analysis of the relevant decision criteria, including NPV, IRR, MIRR, PP, DPP, and Pl.

After you issue your recommendation, a second management group estimates that your sales figures are a little high. Thus, senior management tells you to rework your calculations considering that the incremental sales are more likely to be $750,000 per year for A I and for .A2 (also already adjusted for inflation). Furthermore. senior management informs you of a new proposal in the wings, a cheaper model Y, which would require an investment outlay. Your team has been given some conflicting information about project Y from three separate senior managers: (i) the first tells you that project Y is expected to produce a constant stream of cash flows for 5 years, (ii) the second tells you that project Y is expected to produce a constant stream of cash flows for 15 years, and (iii) the third tells you the length of project Y could be anywhere from 5-15 years. However, all three senior managers agree that the MIRR Of project Y will be about 20-21%. The firm has no other projects in the foreseeable future. so your analysis should not consider other potential projects besides A l, A2, and Y. Keep in mind that your firm has a capital rationing limit of and you can use all Or part of that amount.

2: Senior management asks for your recommendation about which project(s) to undertake, using the new sales estimates provided by the second management group and considering the new proposal of project Y. Your job is to provide a recommendation to senior management. When considering project Y, keep in mind that the overall objective is to maximize firm value. Make sure to include all of your analysis. Assume the predicted cash flows and rate estimates are relatively certain; i.e. you do not need to consider the riskiness of the projected cash flows. Be thorough

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(I have included the calculations. I need to know which project that each of the three managers would choose based on their specific information listed above.)

Q1: Which model do you recommend? E1 E1 659,178.45 35.77% 19.03% NPV IRR MIRR PP DPP PI E2 494,122.62 33.65% 18.68% 2.96 4.09 2.24 2.79 3.79 2.37 22: With the new sales estimates NPV E1 493,600.19 30.48% 18.10% IRR MIRR PP E2 427,891.32 31.11% 18.22% 3.2 4.55 3.27 DPP 4.68 PI 2.03 2.07 Q1: Which model do you recommend? E1 E1 659,178.45 35.77% 19.03% NPV IRR MIRR PP DPP PI E2 494,122.62 33.65% 18.68% 2.96 4.09 2.24 2.79 3.79 2.37 22: With the new sales estimates NPV E1 493,600.19 30.48% 18.10% IRR MIRR PP E2 427,891.32 31.11% 18.22% 3.2 4.55 3.27 DPP 4.68 PI 2.03 2.07