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uhler industries is a arm implement manufacturer. Management is rent y evaluating a proposal to build a plant that I manufacture ghtweight tractors uhler plans
uhler industries is a arm implement manufacturer. Management is rent y evaluating a proposal to build a plant that I manufacture ghtweight tractors uhler plans to use a cost of capital o 12% to eva ate this project ased on extensive research, it has prepared the following incomplete incremental free cash flow projections (in millions of dollars): Free Cash Flow (S000,000s) - Manufacturing expenses (other than depreciation) Year 0 Years 1-9 Year 10 99.00 -40.00 -12.00 99.00 -40.00 - 12.00 - Marketing expenses CCA EBIT -Taxes (35%) Unlevered net income +CCA - Increases in net working capital -5.00 -5.00 -Unlevered net income CCA 5.005.00 Increases in n - Capital expenditures +Continuation value - Free cash flow et working capit 140.00 00 10.00 140.00 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 trucks? 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
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