Issues and Analyses
Mr. Livingston noticed that there was a great deal of enthusiasm among the management group about the transit bus opportunity, but his cautious nature told him to also seek a more objective viewpoint. Consequently, he sought out you to analyze the proposed project and provide your recommendations directly to him. The issues he wants you to address in your analysis and report are the following:
1) How much importance should be given to the energy cost situation?
2) What are the project's cash flows for the next twenty years? What assumptions did you use?
3) What is the company's cost of capital? What is the appropriate discount factor (which may be different) for you to use in evaluating the bus project?
4) If you decide to go ahead with the project, which of the two engines should be used in the bus, and why?
5) Evaluate the quality of the project, by using appropriate capital budgeting techniques.
6) Would you recommend that Road King Trucks accept or reject the project? What are the key factors on which you base your recommendation?