OUESTION $4(22$ points$)$

a$)$ Spark Auto Manufacturing $($SAM$)$ is an automobile manufacturer. Management is currently evaluating

a proposal to build a plant that will manufacture lightweight trucks. SAM plans to use a cost of capital

of $12\%$ to evaluate this project. Based on extensive research, it has prepared the following incremental

free cash flow projections $($in millions of dollars$)$:

i$)$ For this base$-$case scenario, what is the NPV of the plant to manufacture lightweight trucks?

ii$)$ Based on input from the marketing department, SAM 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 $8\%$ higher than forecast?

What is the NPV if revenues are $8\%$ lower than forecast?

$(12$ points$)$