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Question content area top Part 1 Buhler Industries is a farm implement manufacturer. Management is currently evaluating a proposal to build a plant that will
Question content area top
Part 1
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 projections (in millions of dollars):
Free Cash Flow ($000,000s)
Year 0
Years 19
Year 10
Revenues
Manufacturing expenses (other than depreciation)
Marketing expenses
CCA
?
?
EBIT
?
?
Taxes (35%)
?
?
Unlevered net income
?
?
CCA
?
?
Increases in net working capital
Capital expenditures
Continuation value
Free cash flow
?
?
The relevant CCA rate for the capital expenditures is . 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 higher than forecast? What is the NPV of this project if revenues are lower than forecast?
Question content area bottom
Part 1
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 $
enter your response here million.(Round to two decimal places.)
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