Question: Ford and Tesla are both considering some new projects with the following cash flows in millions of dollars forecasted. Year Electric Motor Factory Year Solar
Ford and Tesla are both considering some new projects with the following cash flows in millions of dollars forecasted.
| Year | Electric Motor Factory | Year | Solar Panel Roofs | Year | Spaceship | ||
| 0 | -2000 | 0 | -500 | 0 | -1000 | ||
| 1 | -50 | 1 | 200 | 1 | 0 | ||
| 2 | 200 | 2 | -300 | 2 | 0 | ||
| 3 | 300 | 3 | 800 | 3 | 0 | ||
| 4 | 400 | 4 | 800 | 4 | 0 | ||
| 5 | 400 | 5 | 0 | ||||
| 6 | 0 | ||||||
| 7 | 0 | ||||||
| 8 | 0 | ||||||
| 9 | 0 | ||||||
| 10 | 2000 |
Assume a 10% discount rate for all projects.
The cost of capital (financing rate) is 8% for Ford and 12% for Tesla.
The reinvestment rate is 20% for Ford and 30% for Tesla. You will need this for the MIRR formula in Excel.
Show all of your work and formulas in Excel. Clearly answer the following questions
- Which projects should be invested in by Ford? Which projects should be invested in by Tesla? Apply the NPV, IRR, PI and MIRR methods.
- If only one project can be done, which one is best? Explain
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