Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projects: A. $99,400 B. $53,250 C. $71,000 D. $85,200 Baues industres is an aulomoble manutacturec. Management is currently evaluating a proposal to buld a plant that will manufacture lightweight trucks. Baser plans to use a cost of capital of 12.0 to evaluate this project. Basod on extensive research, a has prepared the incremental free cash flow projections shown beiow (in millions of dollars). a. For this base case sconario, what is the NPV of the plant to manutacture ightweight trucks? b. Based on input from the marketing department, Bluer 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% thigher than forecast? What is the NPV if revenues are 10% lower than forecast? c. Rather than assuming that cash fows for this project are constant, management would leve to explore the sensitivity of its analysis to possible growth in revenues and operating expenses. Spectically, managemerk would the to assume that revenues, manutacturing expenses, and marketing expenses are as given in the table for year 1 and grow by 2% per year overy yoar starting it year 2. Management also plans to assume that the initial capital expenditures (and therefore depreciation), additions to working capilal, and continuation value remain as initialy specified in the table. What is the NFV of this project under these allernative assumptions? How does the NPV change if the revenuas and operating expenses grow by 5% per year rather than by 2% ? d. To ecomine the sensitvity of this propet to the discount rate, management would like to compute the NPV for different discount rates. Create a graph, with the discount rate on the xaxis and the NeV on the y-axis, for discount rates fanging: from 5% to 30%. For what ranges of discount rates does the project have a positive NPV? a. For this bose-case scenach, what is the NPV of the plant to manufacture lightweight trucks? The NPV of the plant to manulacture lightweight trucks, based on the estimated free cash flow is 5 million, (Round to two decimal places:) b. Based on ieput from the marketing department, Baver is uncertan aboul its reverue forecast in particular, managament would like to examine the sensitivity of the NPV to the revonuo ussumptions. What is the NPV of this project it revenues are 10% higher than foreeast? What is the NPV it revenues are 10% lower than forecast? The NPVot this projoct it rowenues are 10% higher than forecast is 4 milion. (Round to two decimal places) The NPV of this proiect ef revenues are 10% lower than forecast is 5 milion. (Round to two decimal places.) c. Rather than assuming that cash fows for this projact are constant, management would like to explore the senexivity of its analyss to possible growth in revenues and operating expensen. Specfcaly, managenent mould like to assume that revenues, manufacturing expenses, and markating expenses are as given in the table for year 1 and grow by 2% per year every year starting in year 2. Managemont also pians to assume that the ivbal capital expondituros (and therofore depreciation), additions to workng capital and oontinuanon value remain as intioly speofied in the table. What is the NPV of this project under these altemative asoumptions? How does the NPV change it the revenues and operating oupenses grow by 5% per year rather than by 2% ? It tevenues, manutacturng expenses, and marketing eapensas grow by 2% per year every year starting in year 2 , the NPV of the estimated free cast flow is 4 places) If resenues, macutacturing oxpenses, and mansting expenses grow by 5% per year every year starting in year 2 , the NPV of the estimated free cash flow is 3 millon. (Round 10 wo decimal placesi
