discussion on3 and two
D1: Proterra Picking Up Speed
Background:
This discussion addresses the following Module Outcomes:
• Evaluate expected portfolio returns on shareholder value. (CO4)
• Evaluate systemic risk by applying a Beta coefficient. (CO4)
• Evaluate firm and project value using a weighted average cost of capital
(WACC). (CO2, CO3, CO4)
Proterra was founded by Dale Hill in 2004 with a vision to design and manufacture
world-leading, advanced technology heavy-duty vehicles powered solely by clean
domestic fuels. After launching a first successful fleet of alternative fuel buses in
the 1990s, Proterra focused on developing the ‘bus of tomorrow.’ Proterra Inc. also
designs and manufactures heavy-duty vehicles including EcoRide, a battery
electric and zero-emissions bus, and Proterra Catalyst, an electric transit vehicle.
The company manufactures a TerraFlex Energy System that enables customers to
select amount and type of energy storage to meet specific route requirements, plus
TerraVolt fast-charge batteries, TerraVolt extended range batteries, an on-route
charge station and in-depot charging services. It offers financing solutions, route
simulation analysis, battery lifecycle management, and standard warranty services
(Proterra, 2015). It serves customers throughout the United States. The company is
privately owned, but is in the process of becoming a public corporation. With this
expectation, the firm’s chief executive officer (CEO) has asked for determination
of which of two companies appears to be a better peer to compare itself against,
New Flyer Industries, Inc. (a Toronto-based firm), or Tesla. Tesla Motor Vehicles
designs, develops, manufactures, and sells high-performance fully electric vehicles
and stationary energy storage units similar to certain Proterra products. Tesla
Motors has subsidiaries in North America, Europe and Asia, with the primary
purpose of these subsidiaries being to market, manufacture, sell and/or service their
vehicles (Tesla Motors, 2016). New Flyer was founded in 1930, and is now the
largest transit bus and motorcoach manufacturer and parts distributor in North
America with fabrication, manufacturing, distribution and service centers in
Canada and the United States. It is North America’s heavy-duty transit bus leader
and offers clean diesel, natural gas, diesel-electric hybrid, electric-trolley and
battery-electric. Information regarding Tesla and New Flyer is given here, for your
use in comparing these firms.
Tesla versus New Flyer
Discussion Prompt:
In this discussion, assume that you are the finance manager for Proterra and you
have been asked to provide an analysis of the following issues, as the firm
develops benchmarks for its cost of capital (WACC) estimates. The firm’s CEO has
instructed you to use the pure play approach to estimate its WACC cost of capital,
and has chosen Tesla Motors (ticker symbol TSLA) and New Flyer (ticker symbol
Significance Measure
T
S
L
A
N
FI
Total Market Value of all outstanding shares. Market capitalization
3
3.
6
3
B
1.
8
3
1
B
Number of outstanding shares currently held by all shareholders.
Outstanding
shares of stock
1
4
7.
2
8
M
5
9.
7
4
2
M
A Beta coefficient indicates the systemic risk that an asset has relative
to an average asset. A risk-free asset has a Beta of zero. Beta 1.28 0.16
The return the firm must earn on its existing assets to maintain the
value of its stock, and the required return on any investments by the
firm that have essentially the same risks as existing operations.
WACC 9.03%8.34
PE ratio divided by expected future earnings growth (after multiplying
the growth rate by 100). PEG Ratio 18.470.5
A measure of profit per dollar of assets. ROA -7.04%6.26%
A measure of how the stockholders fared during the year. ROE -113.20%13.21%
A measure of how much investors are willing to pay per dollar of
current earnings. Higher PEs are often taken to mean the firm has
significant prospects for future growth.
P/E Ratio -29.1725.3
Ratio of Net income to sales. Profit Margin -23.91%-3.83%
NYI.TO) as possible representative peers (Korosec, 2015). You will deliver your
analysis in the form of a memo
(Links to an external site.)
, or formal communication addressed to the firm’s CEO. In this discussion, you are
to present this memo in which you:
Tasks:
a. Using the information provided here and speaking of Finance Director of
Proterra, brief the firm’s CEO, analyzing:
B. Analyze the relative applicability or inapplicability of utilizing these firms as
peers to evaluate Proterra’s likely cost of capital, given what you know about
Proterra, Tesla and New Flyer, and the lessons of Capital Market History.
C. Analyze problems in using an SML approach in determining Proterra’s cost
of capital.
Post two additional replies to classmates, offering critical analyses and comments
relating to their determinations and evaluations of Proterra’s utilization of Tesla as
a peer, and problems in the overall approach of evaluating cost of capital using a
WACC. Please cite sources of additional research examine areas where you do and
do not believe that your classmates’ statements make optimal use of assigned
readings, or could otherwise include additional considerations.
Responses should comprise 200–600 words.
References
Bloomberg. United States rates and bonds
(Links to an external site.)
.
Federal Reserve. (2016). Federal Reserve economic data
(Links to an external site.)
.
Korosec, K. (2015). This startup is gearing up to be the Tesla of electric buses
(Links to an external site.)
. Fortune Magazine.
Proterra. (2015). About Proterra
(Links to an external site.)
.
Securities and Exchange Commission. (n.d.) SEC.gov home
(Links to an external site.)
.
Tesla Motors. (2016). Tesla Motors, Inc. 2016 annual report
(Links to an external site.)
.
Yahoo. (n.d.) Yahoo finance
(Links to an external site.)
.
Consult the Discussion Posting Guide for information about writing your
discussion posts. It is recommended that your write your post in a document first.
Check your work and correct any spelling or grammatical errors. When you are
ready to make your initial post, click on the “Reply”. Then copy/paste the text into
the message field, and click “Post Reply.”
To respond to a peer, click “Reply” beneath her or his post and continue as with an
initial post.
Evaluation
This discussion will be graded using the discussion board rubric. Please review this
rubric, located on the Rubrics page within the Start Here module of the course,
prior to beginning your work to ensure your participation meets the criteria in place
for this discussion. All discussions combined are worth 20% of your final course
grade.