Final answer:
Tesla utilized investment appraisal methods like NPV, IRR, and Payback Period to assess the financial viability of its Gigafactory in 2014, helping the company to make informed decisions about the project.
Step-by-step explanation:
Investment Appraisal Methods Used by Tesla:
In 2014, Tesla Motors used investment appraisal methods to evaluate the viability and financial potential of its Gigafactory project. Investment appraisal, also known as capital budgeting, involves various techniques to assess the worthiness of long-term investments. Typically, these methods include Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, and Discounted Cash Flows (DCF). For Tesla's Gigafactory, which was a substantial investment meant to scale up the production of lithium-ion batteries and electric vehicles, such appraisal methods likely played a crucial role in the decision-making process. For instance, NPV calculations would have enabled Tesla to estimate the expected profitability of the factory by discounting future cash flows back to their present value, thus providing a clear picture of the project's potential to add value to the company.
Similarly, using the IRR method, Tesla would have determined the rate of return at which the present value of cash inflows equals the initial investment, thereby understanding the efficiency of the Gigafactory investment. The Payback Period could have been used to assess risk by calculating how long it would take for the company to recover the initial outlay from the factory's cash inflows. Ultimately, by employing these investment appraisal techniques, Tesla was able to choose confidently in proceeding with the Gigafactory, which has since become a cornerstone in Tesla's supply chain and production capabilities.