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 12.2% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars):

                                                         Year 0                  Year 1-9                   Year 2

Revenues                                                                         95.2                       95.2

-        Manufacturing expenses

(other than depreciation)                                               -37.7                       -37.7

-        Marketing expenses                                                    -9.2                      -9.2

-        Depreciation                                                                 -14.8                      -14.8

=    EBIT                                                                                   33.5                         33.5

-        Taxes (35%)                                                                     -11.7                        -11.7

=   Unlevered net income                                                         21.8                         21.8

+   Depreciation                                                                      +14.8                       +14.8

-        Increases in net working capital                                          -5.4                         -5.4

-        Capital expenditures                              -147.5

+    Continuation value                                                                                           +11.1

=    Free cash flow                                       -147.5                  31.2                         42.3

1. 
   
2. a). For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks?
3. 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?
4. 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 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%?