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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 (5000,000s) Revenues -Marketing expenses -Manufacturing expenses (other than depreciation) -CCA EBIT -Taxes (35%) Unlevered net income CCA -Increases in net working capital -Capital expenditures Continuation value Free cash flow Year 0 Years 1-9 Year 10 119.00 119.00 -30.00 -30.00 -10.00 -10.00 ? ' ? 2 ? ? ? 2 ? ? -5.00 -5.00 -148.00 11.00 -148.00 The relevant CCA rate for the capital expenditures is 15% 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.)
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