Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help me answer the following question. Please only answer if you are sure of your answers and they are clear. This's the whole question

Please help me answer the following question. Please only answer if you are sure of your answers and they are clear. This's the whole question attached nothing is missing. Thank you

Question 13 first half

image text in transcribed

Question 13 second half

image 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 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 Years 1-9 Year 10 96.00 96.00 - 40.00 - 40.00 - 10.00 - 10.00 ? ? ? ? ? 2 2 ? 2 2 -500 -500 Using the indirect method requires a separate calculation of the CCA tax shield. What is the present value of the CCA tax shield? The present value of the CCA tax shield is $ million. (Round to two decimal places.) ? ? 2 2 2 2 - Taxes (35%) = Unlevered net income + CCA - Increases in net working capital - Capital expenditures + Continuation value = Free cash flow -5.00 -5.00 - 143.00 11.00 2 - 143.00 2 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? Using the indirect method requires a separate calculation of the CCA tax shield. What is the present value of the CCA tax shield? The present value of the CCA tax shield is $(million. (Round to two decimal places.)

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

The Money Markets Handbook A Practitioners Guide

Authors: Moorad Choudhry

1st Edition

0470821507, 978-0470821503

More Books

Students also viewed these Finance questions