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Automotive Specialties Incorporated: Net present value analysis

1. Using the demand and price estimates in Exhibits 1 and 2, develop annual revenue projections for the Mesa Verde project.

2. Using the information in the case, develop estimates of the cost of goods sold for each SK.U, operating costs, and depreciation expense for the Mesa Verde plant for each of the next six years.

3. According to the Budgeted figures calculated for Question 1 and 2, produce a discounted cash flow analysis for the Mesa Verde project. Include estimates of the project's net present value and internal rate of return. Express the annual cash flow and net present valu in dollars, according to Jamie's estimate of the royale-to-dollar exchange rate. Should ASI accept the project?

4. Jaime's initial estimates assume that the royale will strengthen over the next several years. Reproduce the analysis asked for in questions 1-3 to reflect the possibility that the royale will weaken (by R2 per year) against the dollar over the project's planning horizon. Should the new plant be built?

5. Jaime consulted several economists and the World Wide Web and found that the chance of the royale weakening (in the manner described in question 4) is approximately 38%. Calculate the project's expected net present value and internal rate of return using this additional information. How should this impact Jaime's recommendation?


Solution Summary

This solution provides calculations for various question regarding and automobile corporation.