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Create Excel model with a direct cash flow forecast for the next generation Impala

Create Excel model with a direct cash flow forecast for the next generation Impala using the information below.

Assumptions:

For simplicity, assume all cash flows occur at year end and there are no working capital requirements.

  • Development cycle (design and engineering of the vehicle before going to market)
  • 5 year development cycle
  • Investment in manufacturing equipment and tooling: $450MInvestment Timing (15% of the total spend in 2010, 20% in 2011, 20% in 2012, 20% in 2013 and 25% in 2014):
  • Engineering budget: $390M (timing same as investment spend)
  • Sales
  • Assume product is launched the year right after the end of the development cycle
  • Life cycle of the product: 5 years of sales after vehicle is launched
  • Total market for full-size sedans in the U.S.: 600K units a year
  • Expected market share: 18%
  • Two different trims are planned for the product:Standard: 65% of total sales; selling price (MSRP) of $27,000 with a 4-cylinder engine (27 MPG fuel economy)
  • Luxury: MSRP of $37,000 with a 6-cylinder engine (16 MPG fuel economy)
  • GM’s revenue per vehicle is after 10% dealer discount from MSRP which dealers typically receive on every sale
  • The pricing unit is planning to reduce the price of the vehicle by 2% per year as the new generation of Impala matures in the marketplace
  • Variable costs
  • Material costsStandard: $16,000 per vehicle
  • Luxury: $19,000 per vehicle
  • Logistics and Warranty cost (includes freight in and out of the plant and to the dealer lot as well as warranty expenses): additional $1,500 average per car
  • Manufacturing cost per unit is calculated at $4,500 per unit, irrespective of the model manufactured
  • Assume 3% reduction in material, logistics, and manufacturing cost per year over the lifecycle of the car as the supplier base becomes more efficient and raw material and manufacturing costs are optimized
  • Other costs
  • Total advertising and marketing budget for the car is $150M in the first year of launch, $75M in each of years 2 to 4, and $125M in year 5

As part of your recommendation, calculate the project’s NPV (using 15% discount rate).

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