Answered step by step
Verified Expert Solution
Question
1 Approved Answer
? Buhler Industries is a farm implement manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight tractors. Buhler plans
? Buhler Industries is a farm implement manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight tractors. Buhler plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incomplete incremental free cash flow projections in millions of dollars): Free Cash Flow ($000,000s) Year 0 Years 1-9 Year 10 Revenues 108.00 108.00 - Manufacturing expenses (other than depreciation) - 37.00 - 37.00 - Marketing expenses - 8.00 - 8.00 - CCA ? ? = EBIT ? ? - Taxes (35%) ? = Unlevered net income ? ? + CCA ? ? - Increases in net working capital -5.00 -5.00 - Capital expenditures - 141.00 + Continuation value 11.00 = Free cash flow - 141.00 ? The relevant CCA rate for the capital expenditures is 20%. Assume assets are never sold. a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight tractors? b. Based on input from the marketing department, Buhler 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 of this project if revenues are 10% lower than forecast? Using the indirect method requires a separate calculation of the CCA tax shield. What is the present value of the CCA tax shield? The present value of the CCA tax shield is million (Round to two decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started