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Save Bauer Industries is an automobile manufacturer Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks Bauer plans to

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Save Bauer Industries is an automobile manufacturer Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks Bauer plans to use a cost of capital of 11 8% to evaluate this project Based on extensive research, it has prepared the incremental free cash flow projections shown below (in millions of dollars) Year 0 1.9 Revenues 10 Manufacturing Expenses (other than depreciation) 978 978 Marketing Expenses -376 -376 Depreciation -94 -94 - 154 EBIT - 154 35.4 Taxes at 35% 354 Unlevered Net Income - 12.4 - 124 230 Depreciation 23.0 15.4 + 15.4 Additions to Not Working Capital -4.4 Capital Expenditures - 1537 Continuation Value 124 Free Cash Flow 1537 340 46.4 a. For this base-case scenario what is the NPV of the plant to manufacture lightweight trucks? b. Based on input from the marketing department. Bawer is uncertains about its revenue forecast In particular, management would like to examine the sensitivity of the NPV to the revenue sumptions What is the NPV of this project it revenues are 12% higher than forecast? What is the NPV it revenues are 12% lower than forecast c. Rather than assuming that cash flows for this project are constant management would like to explore the sensitivity of its analysis to possible growth in revenues and operating expenses Specifically management would like to assume that we manufacturing expenses and marketing expenses are as given in the table for year 1 and grow by 3% per year every year starting in year 2 Management also plans to me that the initial capital expenditures (and therefore depreciation additions to working capital and continuation value remain as initially specified in the table. What is the NPV of this project under these

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