Buhler Industries is a farm implement manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight tractors. Buhler plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars):

The relevant CCA rate for capital expenditures is 10%. Assume assets are never sold.
a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight tractors?
b. Based on input from the marketing department, Buhler is uncertain about its revenue forecast. In particular, management would like to examine the sensitivity of the NPV to the revenue assumptions. What is the NPV of this project if revenues1 are 10% higher than forecast? What is the NPV if revenues are 10% lower than forecast?
c. Rather than assuming that cash flows for this project are constant, management would like to explore the sensitivity of its analysis to possible growth in revenues and operating expenses. Specifically, management would like to assume that revenues, manufacturing expenses, and marketing expenses are as given in the table for year 1 and grow by 2% per year every year starting in year 2. Management also plans to assume that the initial capital expenditures (and therefore CCA), additions to working capital, and continuation value remain as initially specified in the table. What is the NPV of this project under these alternative assumptions?
How does the NPV change if the revenues and operating expenses grow by 5% per year rather than by 2%?
d. To examine the sensitivity of this project to the discount rate, management would like to compute the NPV for different discount rates. Create a graph, with the discount rate on the x-axis and the NPV on the y-axis, for discount rates ranging from 5% to 30%. For what ranges of discount rates does the project have a positive NPV?

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Year 10 100.0 35.0 Year 0 Years 1-9 100.0 Manufacturing expenses other than depreclation) Marketing expenses 35.0 10.0 10.0 EBIT -Taxes (35%) = Unlevered net income +CCA -5.0 -5.0 Increases in net working capital Capital expenditures -150.0 +12.0 +Continuation value -150.0 Free cash flow