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a) Star Trucking Industries (STI) is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. STI
a) Star Trucking Industries (STI) is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. STI 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): i) For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks? ii) Based on input from the marketing department, STI 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 revenues are 8% higher than forecast? What is the NPV if revenues are 8% lower than forecast? a) Star Trucking Industries (STI) is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. STI 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): i) For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks? ii) Based on input from the marketing department, STI 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 revenues are 8% higher than forecast? What is the NPV if revenues are 8% lower than forecast
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