Answered step by step
Verified Expert Solution
Question
1 Approved Answer
4.) Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant to manufacture lightweight trucks. Bauer plans to
4.) Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant to manufacture lightweight trucks. Bauer plans to use a cost of capital of 10% to evaluate this project. The plant will cost $150 million today to build, and will be depreciated on a straight-line basis over 10 years to a final book value of $0. The company's working capital requirements will increase from $40 million to $50 million immediately (for the purchase of raw materials and supplies), and stay at that level until year 10, when working capital will decrease to its original level. Bauer has developed the following additional annual incremental cash flow projections (all dollars in millions) for years 1 through 10. The company's marginal tax rate is 40%. Revenues Manufacturing Expenses (other than depreciation) Marketing Expenses 100.0 35.0 10.0 In addition, the plant is estimated to have a (pre-tax) liquidation value of $12.0 million at the end of its lifetime. Show the annual free cash flows expected from the project. What is the NPV of the plant to manufacture lightweight trucks?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Okay here are the steps to solve this question 1 Calculate ...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started