Finance Homework Case 2

Finance Homework Case 2

In
this fictitious case, you continue in your role as a financial analyst in the
Automotive Strategy staff of Millennial Automotive Company, a global
manufacturer of automotive vehicles and products. Your responsibilities include
evaluating the financial and strategic implications of corporate investment
decisions.

There is new information regarding the
analysis you did for the first case, as outlined in the attached e-mail from
Jess Greentree.

1. Review the attached material and prepare a
one-page executive summary that addresses the impact of the new information.

2. Please include the following items in your
summary:

a. Financial
impact of the new information
b. Your response
to Jess Greentree’s request for help, based on the new information and why
c. A brief discussion of additional
information that would assist you in your evaluation of the alternatives

Analyst,

I just received some information that will
have an impact on the analysis that you put together for our new vehicle (the
Ray) last week. After the presentation last week that included your analysis,
our leadership team decided to select the U.S. as the manufacturing location
for the Ray.

With this decision, our team is now
considering the option of producing a second vehicle nameplate along with the
Ray at the U.S. plant. Below you will find volume projections for the two
vehicle segments and market share projections given different price points.
As you will see below, the segment analysis
and volume projections are unchanged for the Ray nameplate. However, Marketing
and Sales has told us that if we introduce the new vehicle nameplate, the new
vehicle will have a volume substitution impact of 20% on the Ray.
You can assume variable cost inputs
previously provided for the Ray are unchanged. For now, we can assume the new
vehicle nameplate’s variable cost inputs will be consistent with the Ray’s cost
inputs.
Assuming that we produce the Ray and a second
new vehicle nameplate at the U.S. location, I need your help to understand from
a profit perspective the optimal volume and associated price point for the Ray
nameplate and the optimal volume and associated price point for the new vehicle
nameplate.
Of
course for this financial analysis you should now assume our investment
required for our U.S. facility is a sunk cost.
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