Electro Motors (Electro) is considering a new project to produce electric vehicles for the

Australian domestic market and international markets. It has identified a property/plant that was formerly used to build petrol-fuelled motor vehicles that could be refitted at minimal cost to manufacture the new electric vehicles. Electro is targeting Australian metropolitan centers for initial sales and expanding into regional centers over the next five years. International demand for electric vehicles is being driven by China and Electro has been in negotiation to provide vehicles to the Chinese market in 2025.

Electro has made the following projections:

• In the first year, 2,000 units will be sold and growing at 10% pa.
• The price for each unit in the first year will be AU$50,000. This price will increase by 5% pa.
• Variable costs are 70% of the sales price in the first year’s total revenue and grow by 8% each year.
• Fixed costs are $5 million pa, which is expected to grow by 4% each year.
• The project is for a term of 5 years. The projected growth of the electric car line is expected to outgrow the plant at this time, hence the plant will be sold at the end of 5 years.
• Initial investment into manufacturing equipment will be $100 million.
• The equipment may be depreciated at 20% straight-line (prime cost) method to zero.
• In 5 years, the plant will be worth 10% of the purchase price.
• Working capital will be $3 million.
• Electro's required rate of return is 10%.
• The tax rate for Electro is 30%.
• Required payback is three (3) years.

a. Prepare an excel spreadsheet calculating:

1. After-tax cash flows (in table format)
2. Payback period
3. Net present value
4. Profitability index   

b. You are asked to present a report on your findings regarding the upgrade proposal. Make a recommendation to management on whether they should proceed with the project or not. Explain the criteria on which you have based your decision.

c. It has come to your attention that variable costs are anticipated to rise by 12% per annum due to the prospective growth within the industry. Would you recommend to proceed with the project? (Show all calculations).

d. You have been asked to provide a further evaluation regarding the alternative use of the plant for the purpose of manufacturing electric self-driving cars, however, the project life will be for 10 years. Explain how financial managers may evaluate both projects that are of unequal lives. (10 marks)

Questions 11 and 12 below are based on the following information and assumptions:

• AAA takes a Long position in 1 futures contract on cheese. The cheese futures contract has contract size = 100 units (multiplier).
• BBB takes a Short position in 1 futures contract on cheese. The cheese futures contract has contract size = 100 units (multiplier).
• The value of 1 futures contract is $10,000 (= $100 *100).
• The Margin Account is 10% of the value of a futures contract, i.e., the Margin Requirement is $1000 (This is also the Initial Margin).
• The Maintenance Margin = 75%*$1000 = $750
• The following table provides information of Futures Price (ܨ_௧) from Time 0 to 3:

11. Question: given the above information, when does AAA (with Long position in futures) experience a Margin Call?

1. AAA experiences a margin call at Time 2 only
2. AAA experiences a margin call at Time 3 only
3. AAA experiences margin calls at Time 2 and Time 3
4. AAA does not experience any margin call from Time 1 to Time 3

Answer: _______________

12. Question: given the above information, when does BBB (with Short position in futures) experience a Margin Call?

1. BBB experiences a margin call at Time 2 only
2. BBB experiences a margin call at Time 3 only
3. BBB experiences margin calls at Time 2 and Time 3
4. BBB does not experience any margin call from Time 1 to Time 3

Answer: _______________

You are bearish on Loser CO. and decide to sell short 100 shares at the current market price of $49 per share. The initial margin is 50%. How high can the price of the stock go before you get a margin call if the maintenance margin is 25% of the value of the short position?

Round your answer to the nearest cent (2 decimal places).

Cassiopeia inc. is currently trading at $100 per share. After examining the stock of Cassiopeia, you have determined that in each 3 month period its price will either increase to 25% or decrease by 20%. The interest rate is 3% every 3 months. What is the value of a six month European put option on Cassiopeia with an exercise price of $90?

"The 2-year S&P 500 index futures price is currently at $3425. If you are long 4 contracts of the S&P 500 index future contracts with 2-year maturity and with a delivery price of $3000, what's the value of your futures position. The continuously compounding interest rate on dollar is 1%. Each contract is 100 shares. Round to integer. "

1. A firm that produces shirts has a production function q=f(K,L)=KL/10, that has a cost price of labor= $10 and cost price of capital=$100. Find the firm’s long run average cost function, and marginal cost function. Graph AC(q) and MC(q) and identify the firm’s long-run supply curve.

A report announced that the mean sales price of all new houses sold one year was $272,000. Assume that the population standard deviation of the prices is $100,000. If you select a random sample of 100 new houses, what is the probability that the sample mean sales price will be between $250,000 and $285,000?

Select one:

a. 0.8034

b. 0.1388

c. 0.2956

d. 0.8893

What is the percentage change in the price of each bond if its yield to maturity falls from

6.1%

to

5.1%​?

The price of bond A at 6.1% YTM per $100 face value is $ (round to nearest cent)

​

The price of a zero-coupon bond (ZCB) that matures at time t=10 and that has face value 100 is $61.62 Build an n = 10 binomial model lattice model with the following parameters to compute the initial price of a futures contract on the same ZCB that has an expiration of t = 4

r0,0 = 5%

u = 1.1

d = 0.9

q = 1 - q = ½