Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manulacture lightweight trucks. Bauat 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 milions 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 tevenue 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 fows 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, manulacturing expenses, and marketing expenses are as given in the tabie 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). additicns to working capital, and continuation value remain as initially specified in the table. What is the NPV of this project under these alternative astumptions? 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 (base-case scenario) projoct 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? 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.) lauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manulacture lig ost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow pro Data table (Click on the following icon D in order to copy its contents into a spreadsheet.) Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manulacture lightweight trucks. Bauat 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 milions 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 tevenue 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 fows 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, manulacturing expenses, and marketing expenses are as given in the tabie 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). additicns to working capital, and continuation value remain as initially specified in the table. What is the NPV of this project under these alternative astumptions? 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 (base-case scenario) projoct 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? 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.) lauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manulacture lig ost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow pro Data table (Click on the following icon D in order to copy its contents into a spreadsheet.)
