Finance question and answer

You and up to 2 classmates (maximum of 3 in a group) are looking for extra ways to earn money to pay your tuition and earn some extra money on the side. Uber offers the opportunity for anyone with a car to earn extra money. You want to make sure that this is a good investment, so you’ve decided to calculate a few items. 1) Initial Investment (12 marks): To be an Uber driver, you need to invest in a vehicle a. Choose a vehicle i. It must meet minimum requirements to provide the Uber service you want to provide b. Initial Investment: i. Record the cost of the car—this is your investment (document your data source) ii. Assume that you will purchase the car outright (no financing/leasing) c. Salvage Value: Estimate how much the car will be worth in 5 years (document your data source) d. Other investments i. If you don’t have the correct type of driver’s license, you will need to budget in an investment to train yourself to drive ii. There may be other investments you need to make in order to meet the minimum requirements for the Uber service (document your data sources) 2) Pro Forma Operating Cash Flows (26 marks): You will need to forecast yearly income and expenses for the next 5 years. Include all relevant income and expenses, including, but not limited to; a. Uber revenue i. Assume that you can do a maximum of 2-3 rides/deliveries per hour ii. Assume each of you can work a maximum of 30 hours per week (you still need to study) b. Insurance c. Vehicle maintenance & repairs d. Gasoline e. Licensing f. Taxes i. Being honest students, you will remit HST to the government. ii. For income/corporate taxes, assume 15% g. Other h. Be sure to document your data sources 3) Calculate present value of capital cost allowance (PV of CCA) (6 marks) Page 4 of 6 4) Calculate present value of cash flows (6 marks) a. Assume a cost of equity capital of 15% 5) Calculate NPV, IRR, and payback period. Assume you will only do this for 5 years. (8 marks) 6) Would you actually undertake this project? Why or why not? (Max 1⁄2 page) (8 marks) 7) How can you improve the NPV of this project? Explain. (Max 1⁄2 page) (10 marks) A few final instructions: • This report should look like it has been prepared for potential investors to review (i.e. professional looking and easy to read) (10 marks) • Document data sources and use these to guide your assumptions (e.g. for the cost of a Ford Focus, use list price of Focus and assume a 5% negotiated discount to list price) (marks incorporated in relevant section) • Even though Uber requires drivers to be at least 21, just assume that you are able to drive for them immediately