Contemplating about investing in new business segment

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Reference no: EM131606469

Uber, a transportation company that connects car-drivers and riders is contemplating about investing in a new business segment, UberEats in India. Uber has planned to launch UberEats exclusively in the Southern states of Karnataka, Andhra Pradesh, Kerala and Tamil Nadu to gauge potential demand for the new offering. Initial analysis performed by financial analysts graduated from top B-Schools of the country estimate the expected cost of this limited launch to be INR 550 crores and the estimated present value of cashflows from this exclusive launch to be INR 400 crores. Uber will access the success of the exclusive launch over 5 years and decide if it must proceed to launch UberEats throughout India. The cost of a full-scale introduction of UberEats is estimated to be INR 1,200 crores. The expected present value of the full-scale launch is expected to be INR 800 crores. Uber has requested the financial analysts to recommend if the company must proceed with the investment. Imagine yourself in the shoes of the financial analyst and provide your recommendations with numerical justifications. Additional information: Annualized standard deviation of firm value of publicly traded food delivery companies in India is 45% Cost of capital for food delivery companies is 15.83% 5-year Indian government bond rate is 6.1%

Reference no: EM131606469

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