Answered step by step
Verified Expert Solution
Link Copied!

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 to

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

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): Year 0 Years 1-9 Year 10 96.00 96.00 - 40.00 - 40.00 -9.00 - 9.00 ? ? Free Cash Flow ($000,000s) Revenues - Manufacturing expenses (other than depreciation) - Marketing expenses - CCA = EBIT Taxes (35%) = Unlevered net income + CCA - Increases in net working capital ? ? ? ? ? ? ? ? -5.00 -5.00 J.00 -146.00 - Capital expenditures + Continuation value = Free cash flow 10.00 ? - 146.00 ? The relevant CCA rate for the capital expenditures is 10%. 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Marketing

Authors: Roger Kerin, Steven Hartley, William Rudelius

16th Edition

1264218753, 978-1264218752

Students also viewed these Finance questions