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Capital Budget Essay

912 words - 4 pages

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Next Generation C hevrolet

Instructions
You have 1 hour and 30 minutes to complete the case below, which involves building an Excel model and preparing a written memo. You will walk through your analysis as part of the interview process. The GM team will ensure your case material makes its way to the proper interview room. By the end of the allotted time, you should: Write a memo in Word no longer than one page outlining your analysis of the case problem and your recommendation Be prepared to walk your interviewers through your Excel model and present your recommendation (you can use either the Excel or the Word document ...view middle of the document...

Chevrolet has a storied history in the full-size sedan market. The first launched as a 1958 model year vehicle. In its , was the best-selling car in the United States. current 9th generation has market share of ~18% and consistently sold more than 100,000 units per year on average from 2008 to 2009, the latest full year of data available.

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  Assignment 1: Direct C ash F low A nalysis As an analyst in Operations Finance, your manager has asked you to create an Excel model with a direct cash flow forecast for the next generation using the information below. Prepare yourself to walk your interviewer through your Excel model and calculations. Assumptions: For simplicity, assume all cash flows occur at year end and there are no working capital requirements. 1. Development cycle (design and engineering of the vehicle before going to market) 5 year development cycle Investment in manufacturing equipment and tooling: $450M a. Investment 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) 2. 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...

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