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AutoEdge Expansion and Net Present Value Analysis

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Over lunch, you and Lester meet to discuss your next assignment.

"The board of directors has been working on the cost and benefits of various expansion options," he says. "We have developed the numbers for one scenario in this spreadsheet, and we want you to review it," he says handing it to you.

"So you're looking for me to use present value analysis to discount the cash flows," you say. "Should I include the calculations for net income, operating cash flows, free cash flows, and the present value cash flows and net present value (NPV) in the spreadsheet?"

"Yes," he says. "We want to know if the project has a positive or negative NPV. Also, in 500 words or less, explain the implications for AutoEdge and its shareholders if there is a positive NPV or, conversely, if there is a negative NPV."

"This will be interesting," you say.

"Good," he says. "Oh, and one more thing. In addition to considering the NPV value, we want to know what kind of economic assumptions you think the board should consider. Articulate the economic and political risks with the strategy, and list options to overcome them. How will this decision affect the share price and the value of the company? In light of all this information, would you support the option for expansion abroad or relocate back to the United States? Include an explanation of your response, as well."

"I'll get right on it," you say.

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Solution Summary

Analyze whether the company should finance its expansion plans.

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Auto Edge - PEST Analysis

Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.

You're meeting with Lester in his office to discuss the details of your presentation to the board next week.

"Given all of the research that you have completed over the past several weeks," he says, "you should have most of the information you need to make a presentation to the board. The board doesn't want you to do any more research on all of the topics; rather, we want you to summarize the research that you have already done. "

"Yes," you say. "I think I have what I need."

"Of course we want your final conclusion and recommendation on what the company should do regarding the location issue, as well," he says.

When you get back to your office, you type out your notes about each element you discussed and the overall organization of the presentation. For this presentation, you are addressing the following elements:
•Legal, social, and financial factor considerations
•Economic factors: gross domestic product (GDP), inflation, interest rates, unemployment
•Elasticity of demand
•Economies of scale and efficiency
•Strengths, weaknesses, opportunities, and threats (SWOT)
•Market structure
•Costs (marginal, fixed, variable, etc.)
•International expansion

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