acg6175 cmba summer 2015 _ final exam _ complete solution

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ACG6175 CMBA Summer 2015 | Final Exam | Complete SolutionACG6175 CMBA Summer 2015 | Final Exam | Complete SolutionFinal Examination – ACG6175 CMBA Summer 2015By submitting this examination for grading I affirm that I have not discussed this examinationwith any other person, nor accessed or employed any information not included in the materialspresented below.Required:Write your answers in standard English.Include any computations you make in completing your answers.Be specific.1) Decompose Tesla’s ROE for the annual periods 2012-2014. Note any trends you observe.2) Tesla notes that Q1 automotive revenue includes $51 million from the sale of ZEV credits.* Assuming that 2012-2014 annual revenues are comprised of the same percentage of ZEV revenues as was the case in Q1 of 2015, re-compute Tesla’s income after removing the effect of the ZEV sales and decompose ROE using the revised data.3) Compare your new calculations to your ROE decomposition from question 1.4) Comment on the quality of Tesla’s earnings.5) Given that Tesla has consistently generated losses, how has the company managed to survive? Read Tesla’s Stockholder Letter for the first quarter of 2015. Tesla repeatedly refers to “non- GAAP” results.6) What are the specific departures Tesla makes from GAAP in computing these numbers?7) Why do you think the company keeps referring to “non-GAAP” measures?*Here’s how ZEV (zero emission vehicle) credits work: Every major auto manufacturer in theU.S. is required to sell a given percentage of zero-emission vehicles (by 2025 it will reach 15%). Failure to meet this standard results in a fine. Manufacturers receive zero emission vehicle “credits” for each ZEV sold. ZEV sales were, however, only 1% of automotive sales in 2014. This means many manufacturers fall below the threshold. They can, however, buy “credits” from other companies in order to keep from paying the fines. Since Tesla only sells ZEVs it has “extra” credits that it can sell.In 2015, we have already expanded our product portfolio with exciting new products and features while continuing to execute on our long-term plans. We ramped the manufacturing and availability of All-Wheel Drive Model S 85D, introduced 70D, and are building release candidate prototypes of Model X. Last week, we also launched our new Tesla Energy business, introducing asuite of energy storage products with a vision that we believe will help to eventually transform the global energy paradigm. Both our vehicle and Tesla Energy businesses will benefit from our Gigafactory project, which should start producing initial quantities of battery packs in 2016.We also significantly improved manufacturing efficiency and reduced per unit vehicle costs while achieving a higher average weekly production rate during Q1. These efforts, combined with a favorable product mix, helped us reach our Q1 non-GAAP automotive gross margin target, despite the significant negative impact of a strong dollar. We were also able to accelerate yearover- year revenue growth in Q1, while improving operational efficiency as reflected in lower than expected growth of operating expenses. Overall, these achievements represent a strong start to a very big year at Tesla. Expanding the Market for Model S We continue to see growing Model S demand. In Q1, both North American and European orders were much higher than Q1 last year, despite limited availability of 85D and before the announcement of 70D. While we still have work to do in China, we saw encouraging signs of a return to growth in orders there as well. Recently, order rates have accelerated even further with greater availability of 85D and the launch of 70D. This is especially encouraging as potential customers in many markets have yet to experience these products first hand. 70D has only been shown in North America, and our all-wheel drive cars will not be available in right hand drive markets until Q3. We remain confident in o