Question: The Analysis
Mr. Joe noticed that there is an abundance of enthusiasm about entering the electric car conversion kit building business, but his cautious nature made him seek a more neutral analyst. This is your responsibility. You have been hired by Electrics to analyze the proposal to build the electric motor and provide recommendations to Mr. Joe. The issues that need to be addressed in your report are the following:
1. How much importance should be given to the energy cost situation?
2. What is the project's cost of equity?
3. What is the appropriate discount factor to use for evaluating the electric motor project?
4. Forecast the project's cash flows for the next eight years. What assumptions did you use?Use MACRS depreciation for this case.
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 electric motor and the cost of the controller.
7. Based on the scenario and sensitivity analysis you performed above, comment on the overall riskiness of the project.
8. Which of the two controllers should be used in the conversion kit if you decide to go ahead with the project and why?
9. Would you recommend that Electrics accept or reject the project? What is the basis for your recommendation?
Information related to above question is enclosed below:
Attachment:- Case Info.rar