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 extensiveresearch, it has prepared the following incomplete incremental free cash flow projections(in millions ofdollars) Free Cash Flow($000,000s) Year 0 Years 1 9 Year 10 Revenues 111 00 111 00 Manufacturing expenses(other thandepreciation) 30 00 30 00 Marketing expenses 12 00 12 00 CCA EBIT Taxes (35 ) Unlevered net income CCA Increases in net working capital 5 00 5 00 Capital expenditures 152 00 Continuation value 12 00 Free cash flow 152 00 The relevant CCA rate for the capital expenditures is 20 Assume assets are never sold a For thisbase case scenario, what is the NPV of the plant to manufacture lightweighttractors b Based on input from the marketingdepartment, Buhler is uncertain about its revenue forecast Inparticular, 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 thanforecast What is the NPV of this project if revenues are 10 lower thanforecast

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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 to

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 extensiveresearch, it has prepared the following incomplete incremental free cash flow projections(in millions ofdollars):

Free Cash Flow($000,000s)

Year 0

Years 1-9

Year 10

Revenues

111.00

Manufacturing expenses(other thandepreciation)

30.00

Marketing expenses

12.00

CCA

=EBIT

Taxes (35%)

=Unlevered net income

+CCA

Increases in net working capital

5.00

Capital expenditures

152.00

+Continuation value

12.00

=Free cash flow

152.00

The relevant CCA rate for the capital expenditures is 20%. Assume assets are never sold.

a. For thisbase-case scenario, what is the NPV of the plant to manufacture lightweighttractors?

b. Based on input from the marketingdepartment, Buhler is uncertain about its revenue forecast. Inparticular, 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 thanforecast? What is the NPV of this project if revenues are 10% lower thanforecast?