Tesca Works: See questions below:
1. How much importance should be given to the energy cost situation?
2. What is the project's cost of equity? What is the approriate discount factor use for evaluating the refrigerator project?
3. Which of the two compressors should be used in the refrigerator if you decide to go ahead with the project and why?
4. Forecast the project's cash flows for the next twenty years. What assumptions did you use?
5. Use the appropriate capital budgeting techniques to evaluate the project.
6. Use the average demand scenario to evaluate the sensitivity of the project's NPV with respect to sale price of the refrigerator and the cost of the compressor.
7. Based on the scenario and sensitivity analysis you performed above, comment on the overall riskiness of the project.
8. Would you recommend that Tesca works accept or reject the project? What is the basis for your recommendation?