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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 to evaluate this project. Based on extensive research, it has prepared the following incomplete incremental free cash flow projectionsin millions of dollars:
The relevant CCA rate for the capital expenditures is Assume assets are never sold.
a For this basecase scenario, what is the NPV of the plant to manufacture lightweight tractors? Using the indirect method requires a separate calculation of the CCA tax shield. What is the present value of the CCA tax shield?
b Based on input from the marketing department, Buhler is uncertain about its revenue forecast. In particular, management would like to examine the sensitivity if the NPV to the revenue assumptions. What is the NPV of this project if revenues are higher than forecast? What is the NPV of this project if revenues are lower than the forecast
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