Case on Tesca Works

Introduction

Michael Burton has recently been hired as the CEO of Tesca Works, Inc.  Previously he had been the marketing manager for a large manufacturing company and had established a reputation for identifying new consumer trends.  Tesca Works Inc. is a California-based generator manufacturing company.  The company is well known for manufacturing large, heavy-duty generators at a reasonable cost.  One of its greatest achievements is that its generators can be easily modified or customized for different applications. ………

Questions

           a. What is the project’s cost of equity?  What is the appropriate discount factor to use for evaluating the refrigerator project?

           b. Forecast the project’s cash flows for the next eight years.  What assumptions did you use? Use straight line depreciation for this case.

          c. Use the appropriate capital budgeting techniques to evaluate the project.

          d. Use the average demand scenario to evaluate the sensitivity of the project’s NPV 

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