Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to buid a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12.1% to evaluate this project. Based on extensive research, it has prepared the incremenilal free cash Non projections shown belonin milions of dollars Year Rovanuns 95.8 Manufacturing Expenses (other than depreciation) Marketing Expenses - 101.3 Depreciation - 15.3 EBIT 33.5 Taxes at 35% - 11.7 Unlevered Net Income 21.8 Depreciation +15.3 Add come to Ne. Working Capilal a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks? 100 95.2 - 36.7 - 10.3 - 153 33.5 - 11.7 21.8 - 15.3 The NPV af the plant to manufacture lightweight trucks, based on the estimated free cash flow is 3 million. {Round to two decimal places.) b. Based on input from the marketing department, Bauer is uncertain about its revenue forecast. In particular, management would like to examine the sensitivity of the NPV to the revenue assurnptions. What is the NPV of this project if revenues are 0% higher than forecast? What is the NPV If revenues are 8% lower than forecast? The NP Vof this project if ravenues arn % higher than forecast is $ milion. [Round town decimal plans. The NPV of this project if revenues are 8% lower than forecast is 3 million (Round to two decimal places.) c. Rather than assuming that cash flows for this project are constant management would like to axplom the sensitivity of ts Analysis to possola growth in revenues and operating expensas. Specificaly, management would like to assume that revenues, manufacturing expenses, and marketing cancnscs are as given in the tale for year 1 and grow by 2% ner year cvery year starting in year 2. Management also plans to assume that the initial capital cxpenditures and the care depreciation), additions to working capital, and cantinuation valus remain as initially specified in the table. What is the NPV of this project under these alterative assumptions? How does the NPV change if the revenues and pers.in expenses run by 6% per year rather than by 2992 If revenues, manufacturing expenses, and marketing expenses grow by 25 per year every year starting in year 2, the NPV of the estimated tree cash flow is $ million (Round to two decimal place.) If revenues, manufacturing expenses, and marketing expenses grow by 6% per year every year starting in year 2, the NPV of the estimated free cash flow is million (Round to tuc decimal places.) d. To examine the sensitivity of this project to the discount rate, management would like to compute the NPV for different discount rates using the bese-case scenario. Create a graph, with the discount rate on the x-axis and the NPV on the from 5% to 30%. For what range of clacount rates does the project have a positie NPV? exis, for discount rates ranging The NPV is positive for discount rates below the IRR of %6. Round to one decimal place.) Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to buid a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12.1% to evaluate this project. Based on extensive research, it has prepared the incremenilal free cash Non projections shown belonin milions of dollars Year Rovanuns 95.8 Manufacturing Expenses (other than depreciation) Marketing Expenses - 101.3 Depreciation - 15.3 EBIT 33.5 Taxes at 35% - 11.7 Unlevered Net Income 21.8 Depreciation +15.3 Add come to Ne. Working Capilal a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks? 100 95.2 - 36.7 - 10.3 - 153 33.5 - 11.7 21.8 - 15.3 The NPV af the plant to manufacture lightweight trucks, based on the estimated free cash flow is 3 million. {Round to two decimal places.) b. Based on input from the marketing department, Bauer is uncertain about its revenue forecast. In particular, management would like to examine the sensitivity of the NPV to the revenue assurnptions. What is the NPV of this project if revenues are 0% higher than forecast? What is the NPV If revenues are 8% lower than forecast? The NP Vof this project if ravenues arn % higher than forecast is $ milion. [Round town decimal plans. The NPV of this project if revenues are 8% lower than forecast is 3 million (Round to two decimal places.) c. Rather than assuming that cash flows for this project are constant management would like to axplom the sensitivity of ts Analysis to possola growth in revenues and operating expensas. Specificaly, management would like to assume that revenues, manufacturing expenses, and marketing cancnscs are as given in the tale for year 1 and grow by 2% ner year cvery year starting in year 2. Management also plans to assume that the initial capital cxpenditures and the care depreciation), additions to working capital, and cantinuation valus remain as initially specified in the table. What is the NPV of this project under these alterative assumptions? How does the NPV change if the revenues and pers.in expenses run by 6% per year rather than by 2992 If revenues, manufacturing expenses, and marketing expenses grow by 25 per year every year starting in year 2, the NPV of the estimated tree cash flow is $ million (Round to two decimal place.) If revenues, manufacturing expenses, and marketing expenses grow by 6% per year every year starting in year 2, the NPV of the estimated free cash flow is million (Round to tuc decimal places.) d. To examine the sensitivity of this project to the discount rate, management would like to compute the NPV for different discount rates using the bese-case scenario. Create a graph, with the discount rate on the x-axis and the NPV on the from 5% to 30%. For what range of clacount rates does the project have a positie NPV? exis, for discount rates ranging The NPV is positive for discount rates below the IRR of %6. Round to one decimal place.)
