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 extensiveresearch, it has prepared the following incomplete incremental free cash flow projections (in millions of dollars):Year 0Free Cash Flow ($000,000s)Revenues- Manufacturing expenses (other than depreciation)- Marketing expenses- CCA= EBIT- Taxes (35%)= Unlevered net income+CCA- Increases in net working capitalCapital expenditures+ Continuation value= Free cash flow- 148.00- 148.00Years 1-9 Year 1094.00- 39.00- 8.00???2?- 5.00?94.00- 39.00- 8.00?????- 5.0012.00?The relevant CCA rate for the capital expenditures is 20%. 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 are10% higher than forecast? What is the NPV of this project if revenues are 10% lower than forecast?a. For this base-case scenario, what is the NPV of the plant to manufacture lightweighttractors?The NPV is $ million. (Round to two decimal places.)CUsing 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 $30.64 million. (Round to two decimal places.)

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?

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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 1P

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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 - Capital expenditures + Continuation value = Free cash flow - 155.00 Years 1-9 Year 10 115.00 - 33.00 - 10.00 ? ? 2 ? ? - 5.00 115.00 - 33.00 - 10.00 ? ? ? 2 ? ? -5.00 10.00 ? - 155.00 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 tractors? b. Based on input from the marketing department, Buhler…
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 - Capital expenditures + Continuation value = Free cash flow - 146.00 - 146.00 Years 1-9 Year 10 106.00 - 30.00 - 9.00 ? ? ? ? ? - 5.00 ? 106.00 - 30.00 - 9.00 ? ? ? ? ? - 5.00 10.00 ? 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 tractors? b. Based on input from the marketing department, Buhler…
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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 10 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 Year 0 Years 1-9 113.00 - 37.00 - 8.00 ? ? ? ? ? - 5.00 113.00 - 37.00 - 8.00 ? ? ? ? ? - 5.00
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): Free Cash Flow ($000,000s) Revenues - Marketing expenses - CCA = EBIT Year 0 Years 1-9 Year 10 - Manufacturing expenses (other than depreciation) 96.00 -38.00 96.00 - 38.00 - 11.00 - 11.00 ? ? ? ? ? ? ? ? ? - 5.00 - 5.00 -146.00 10.00 - 146.00 ? - 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 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…
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): K Free Cash Flow ($000,000s) Year 0 Years 1-9 Year 10 91.00 - 34.00 91.00 -34.00 - 8.00 - 8.00 ? ? ? ? Revenues - Manufacturing expenses (other than depreciation) -Marketing expenses - CCA = EBIT -Taxes (35%) = Unlevered net income + CCA ??? ??? 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.)
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