{ "key_pair_value_system": true, "answer_rating_count": "", "question_feedback_html": { "html_star": "", "html_star_feedback": "" }, "answer_average_rating_value": "", "answer_date_js": "2024-05-25T05:10:26-04:00", "answer_date": "2024-05-25 05:10:26", "is_docs_available": "", "is_excel_available": "", "is_pdf_available": "", "count_file_available": 0, "main_page": "student_question_view", "question_id": "1669879", "url": "\/study-help\/questions\/bauer-industries-is-an-automobile-manufacturer-management-is-currently-evaluating-1669879", "question_creation_date_js": "2024-05-25T05:10:26-04:00", "question_creation_date": "May 25, 2024 05:10 AM", "meta_title": "[Solved] Bauer Industries is an automobile manufac | SolutionInn", "meta_description": "Answer of - Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that wi | SolutionInn", "meta_keywords": "bauer,industries,automobile,manufacturer,management,evaluating,proposal,build,plant,will,manufacture,lightweight", "question_title_h1": " Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to", "question_title": " Bauer Industries is an automobile manufacturer. Management is currently evaluating a", "question_title_for_js_snippet": "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 12 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 8 higher than forecast What is the NPV if revenues are 8 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 3 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 3 d To examine the sensitivity of this (base case scenario) 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 Data table (Click on the following icon in order to copy its contents into a spreadsheet ) Revenues Manufacturing expenses (other than depreciation) Marketing expenses Depreciation EBIT Taxes at 28 Year 0 Yera 1 9 98 0 Year 10 98 0 35 5 35 5 9 4 9 4 14 6 14 6 38 5 10 78 27 72 14 6 38 5 10 78 27 72 14 6 Unlevered net income Depreciation Increases in net working capital 5 2 5 2 Capital expenditures 146 0 Continuation value 11 5 Free cash flow 146 0 37 120 48 620 a For this base case scenario, what is the NPV of the plant to manufacture lightweight trucks The NPV of the estimated free cash flow is $ 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 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 The NPV of the project if revenues are 8 higher than forecast is $ million (Round to two decimal places ) The NPV of the project if revenues are 8 lower than forecast is $ million (Round to two decimal places ) 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 3 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 3 million (Round to two decimal places ) The NPV of the project if the revenues and operating expenses grow by 3 per year is $ The NPV of the project if the revenues and operating expenses grow by 5 per year is $ million (Round to two decimal places ) d To examine the sensitivity of this (base case scenario) 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 The NPV is positive for discount rates below the IRR of (Round to two decimal places )", "question_description": "\"image\"image\"image", "transcribed_text": "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 12% 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 8% higher than forecast? What is the NPV if revenues are 8% 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 3% 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 3%? d. To examine the sensitivity of this (base-case scenario) 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? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Revenues - Manufacturing expenses (other than depreciation) - Marketing expenses - Depreciation = EBIT - Taxes at 28% Year 0 Yera 1-9 98.0 Year 10 98.0 - 35.5 - 35.5 - 9.4 - 9.4 - 14.6 - 14.6 38.5 - 10.78 27.72 + 14.6 38.5 - 10.78 27.72 + 14.6 = Unlevered net income + Depreciation - Increases in net working capital -5.2 - 5.2 - Capital expenditures - 146.0 + Continuation value +11.5 = Free cash flow - 146.0 37.120 48.620 a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks? The NPV of the estimated free cash flow is $ 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 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? The NPV of the project if revenues are 8% higher than forecast is $ million. (Round to two decimal places.) The NPV of the project if revenues are 8% lower than forecast is $ million. (Round to two decimal places.) 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 3% 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 3%? million. (Round to two decimal places.) The NPV of the project if the revenues and operating expenses grow by 3% per year is $ The NPV of the project if the revenues and operating expenses grow by 5% per year is $ million. (Round to two decimal places.) d. To examine the sensitivity of this (base-case scenario) 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? The NPV is positive for discount rates below the IRR of %. (Round to two decimal places.)", "related_book": { "title": "Cornerstones of Managerial Accounting", "isbn": "324660138, 978-0324660135", "edition": "3rd Edition", "authors": "Mowen, Hansen, Heitger", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/94.jpg", "uri": "\/textbooks\/cornerstones-of-managerial-accounting-3rd-edition-94", "see_more_uri": "" }, "free_related_book": { "isbn": "1506219225", "uri": "\/textbooks\/ielts-strategies-with-practice-tests-2nd-edition-9781506219226", "name": "IELTS Strategies With Practice Tests", "edition": "2nd Edition" }, "question_posted": "2024-05-25 05:10:26", "see_more_questions_link": "\/study-help\/questions\/business-banking-2021-September-12", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/study-help\/questions\/what-are-some-marketing-strategies-for-delivering-objectives-polestar-car-654728", "description": "What are some Marketing Strategies for Delivering Objectives Polestar (Car company) has used or using?", "stars": 0 }, { "url": "\/a-july-2011-roper-poll-showed-that-59-of-its", "description": "A July 2011 Roper Poll showed that 59% of its randomly selected U.S. adults would support banning smoking in all public places. (This was up from 44% in July 2010.) Suppose the margin of error was 4...", "stars": 3.5 }, { "url": "\/study-help\/intro-to-college-math-basic-arithmetic-geometry\/use-simple-interest-to-maturity-value-and-monthly-payment-14600-1158968", "description": "Use simple interest to maturity value and monthly payment $14,600 at 6% for 7 years", "stars": 3 }, { "url": "\/study-help\/psychology\/name-the-different-levels-of-the-hierarchy-of-needs-p-1982587", "description": "Name the different levels of the hierarchy of needs. (p. 264)", "stars": 3 }, { "url": "\/john-and-sandy-ferguson-got-married-eight-years-ago-and-have-a", "description": "John and Sandy Ferguson got married eight years ago and have a seven-year-old daughter Samantha. In 2017, John worked as a computer technician at a local university earning a salary of $52,000, and...", "stars": 3 }, { "url": "\/study-help\/questions\/deltas-policy-is-to-keep-20-of-next-months-sales-9795851", "description": "Deltas policy is to keep 20% of next months sales in ending inventory. If sales in April are expected to be 5,800 units, and sales in May are expected to be 8,000 units, how many units should be...", "stars": 3 }, { "url": "\/study-help\/questions\/crane-library-a-nonprofit-organization-presented-the-following-statement-of-569567", "description": "Crane Library, a nonprofit organization, presented the following statement of financial position and statement of activities for its fiscal year ended February 28, 2024. Assets Current Assets Cash...", "stars": 3 }, { "url": "\/study-help\/questions\/per-the-last-update-in-your-leadership-essentials-interview-each-6678843", "description": "Per the last update in your Leadership Essentials interview, each interview ee is required to complete . seenare based business wnti consideration Please read carefully and see below for...", "stars": 3 }, { "url": "\/study-help\/questions\/suppose-your-department-decides-to-host-a-celebration-because-they-3209636", "description": "Suppose your department decides to host a celebration because they exceeded sales expectations for the quarter. If you were only focused on equality, what would you do? Limit institutional barriers...", "stars": 3 }, { "url": "\/study-help\/questions\/income-statement-revenue-collars-322560-leashes-271040-harnesses-312500-1003812", "description": "Income Statement Revenue: Collars $ 322,560 Leashes 271,040 Harnesses 312,500 Total Revenue: $ 906,100 Cost of goods sold 28,258 Gross profit $ 877,842 Expenses: General and administrative salaries $...", "stars": 3 }, { "url": "\/study-help\/questions\/determine-the-moment-generated-by-the-425-n-force-applied-1027261", "description": "Determine the moment generated by the 425 N force applied at point D about point C Note: Remember Counterclockwise moments are considered positive. Justify your answer to receive full points. 215 mm...", "stars": 3 }, { "url": "\/study-help\/questions\/a-recruiter-is-using-a-consistent-set-of-questions-to-3125254", "description": "A recruiter is using a consistent set of questions to interview candidates for retail cashier roles in locations across the US Which question ( s ) would be inappropriate to ask? Select all that...", "stars": 3 }, { "url": "\/study-help\/questions\/a-customer-entrusts-certain-important-documents-for-safe-custody-to-4912394", "description": "A customer entrusts certain important documents for safe custody to his bank.The bank keeps the documents in a wooden box.Later it is found that the documents were destroyed by white ants.What is the...", "stars": 3 }, { "url": "\/study-help\/questions\/a-startup-is-considering-buying-a-325000-piece-of-equipment-8482864", "description": "A startup is considering buying a $325,000 piece of equipment. If it purchases the equipment, it will take a loan for the entire amount; the interest on the loan is 4%, and the loan will be repaid in...", "stars": 3 }, { "url": "\/study-help\/introduction-to-mathematical-statistics-\/an-atomic-energy-commission-nuclear-facility-was-established-in-hanford", "description": "An Atomic Energy Commission nuclear facility was established in Hanford, Washington, in 1943. Over the years, a significant amount of strontium 90 and cesium 137 leaked into the Columbia River. In a...", "stars": 3 }, { "url": "\/study-help\/financial-markets\/what-does-it-mean-when-a-savings-institution-is-a-1710653", "description": "What does it mean when a savings institution is a mutual organization? (LG 14-1) AppendixLO1", "stars": 3 }, { "url": "\/study-help\/financial-markets\/what-two-major-pieces-of-legislation-were-adopted-in-the-1710656", "description": "What two major pieces of legislation were adopted in the late 1980s and early 1990s to ameliorate the thrift crisis? Explain. (LG 14-1) AppendixLO1", "stars": 3 }, { "url": "\/study-help\/financial-markets\/what-were-the-reasons-for-the-crisis-of-the-savings-1710657", "description": "What were the reasons for the crisis of the savings institutions industry in the mid-1980s? (LG 14-1) AppendixLO1", "stars": 3 } ], "next_back_navigation": { "previous": "\/study-help\/questions\/wilcox-mills-is-a-manufacturer-that-makes-all-sales-on-1669878", "next": "\/study-help\/questions\/question-content-area-budgeted-income-statement-and-balancesheet-as-a-1669880" }, "breadcrumbs": [ { "name": "Study help", "link": "https:\/\/www.solutioninn.com\/study-help\/questions-and-answers" }, { "name": "Business", "link": "https:\/\/www.solutioninn.com\/study-help\/questions-and-answers\/business" }, { "name": "Finance", "link": "https:\/\/www.solutioninn.com\/study-help\/questions\/business-finance" }, { "name": " Bauer Industries is an automobile manufacturer. Management is currently evaluating a", "link": "https:\/\/www.solutioninn.com\/study-help\/questions\/bauer-industries-is-an-automobile-manufacturer-management-is-currently-evaluating-1669879" } ], "skill_details": { "skill_id": "13", "skill_name": "Finance", "parent_id": "1" } }d": "1" } }