Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 11.7% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars):

a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks?

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 assumptions. What is the NPV of this project if revenues 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 depreciation), 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?

P8-24 (similar to) Question Help O a st of capital of 11.7% to evaluate this proiect. Based on X he revenue assumptions. What is the NPV of this project ng expenses. Specifically, management would like to ent also plans to assume that the initial capital se alternative assumptions? How does the NPV change 99.0 n the x-axis and the NPV on the y-axis, for discount Bauer Industries is an automobile manufacturer Manageposti autunut OLDSSOL oude slast that will. facture listuialat tulis Boucles to L extensive research, it has prepared the following increme i Data Table - a. For this base-case scenario, what is the NPV of the pla b. Based on input from the marketing department, Bauer if revenues are 10% higher than forecast? What is the NA c. Rather than assuming that cash flows for this project al (Click on the following icon in order to copy its contents into a spreadsheet.) assume that revenues, manufacturing expenses, and mal expenditures (and therefore depreciation), additions to wd Year 0 1-9 10 if the revenues and operating expenses grow by 5% per Revenues 99.0 d. To examine the sensitivity of this project to the discoun rates ranging from 5% to 30%. For what ranges of discou Manufacturing Expenses (other than depreciation) - 37.1 - 37.1 Marketing Expenses - 10.4 - 10.4 a. For this base-case scenario, what is the NPV of the pla Depreciation - 15.4 - 15.4 EBIT 36.1 36.1 The NPV of the estimated free cash flow is $1 million. Taxes at 20% - 7.22 - 7.22 Unlevered Net Income 28.88 28.88 Depreciation + 15.4 + 15.4 Additions to Net Working Capital -4.4 -4.4 Capital Expenditures - 154.0 Continuation Value + 12.1 Free Cash Flow - 154.0 39.880 51.980 Print Done Enter your answer in the answer box and then click CH