- Increases in net working capital- Capital expenditures+ Continuation value= Free cash flow- 145.00- 145.005.00?5.0010.00?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 revenuesare 10% higher than forecast? What 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.) 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 onextensive research, it has prepared the following incomplete incremental free cash flow projections (in millions of dollars):Year 10Free Cash Flow ($000,000s)Revenues- Manufacturing expenses (other than depreciation)- Marketing expenses- CCA= EBIT- Taxes (35%)= Unlevered net income+ CCA- Increases in net working capitalYear 0Years 1-9113.00- 37.00- 8.00?????- 5.00113.00- 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): Year 0 Free Cash Flow ($000,000s) Revenues - Manufacturing expenses (other than depreciation) - Marketing expenses CCA CCA EBIT - Taxes (35%) Unlevered net income +CCA - Increases in net working capital Years 1-9 113.00 - 37.00 -8.00 Year 10 ? ? 2 2 -5.00 113.00 - 37.00 - 8.00 ? 2 ? 2 ? 2 2 -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): Year 0 Free Cash Flow ($000,000s) Revenues - Manufacturing expenses (other than depreciation) - Marketing expenses CCA CCA EBIT - Taxes (35%) Unlevered net income +CCA - Increases in net working capital Years 1-9 113.00 - 37.00 -8.00 Year 10 ? ? 2 2 -5.00 113.00 - 37.00 - 8.00 ? 2 ? 2 ? 2 2 -5.00

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Suppose you have $10,000 to invest in one of the following projects. Project Alpha requires an…

A: NPV represents Net Present Value. It is a financial measurement used to assess the profitability of…

Q: The capitalized cost of a series of cash flows starting at the end of the first year with $7,500 and…

A: Capitalized cost is the cost which are including in the cost of the cost of the asset in the firm…

Q: PW analysis for one project refers to the value of all cash flows converted to a single sum…

A: In the mentioned question we have been asked what actually PW is and do the given statement is true…

Q: An alumni of CSUN's engineering department would like to donate to the department's scholarship…

A: Answer is given below

Q: Question 2.2. In which two market models would advertising be used most often? Pure competition…

A: There are different forms of market in the economy such as perfectly competitive market, monopoly,…

Q: Problem 02.033 - Calculation of unknown gradient For the cash flow revenues shown below, find the…

A: For the cash flow revenues shown below,* The equivalent annual worth in years 1 through 7 equal to…

Q: Required Information An Investment broker that Ava trusts recommended that she purchase a $50,000,…

A: A bond is classified as a financial instrument that is issued by an organization to raise capital.…

Q: Imagineering, Inc., is considering an investment in CAD-CAM compatible design software with the cash…

A: Future worth shows the total value of an investment or cash flow at an identified future point in…

Q: The relevant CCA rate for the capital expenditures is 15%. Assume assets are never sold. a. For this…

A: Net present value or NPV can be defined as the capital budgeting tool that is used to make a…

Q: Civil engineering consulting firms that provide services to outlying communities are vulnerable to a…

A: Introduction: An interest rate is the amount of interest due every period as a percentage of the…

Q: Capital Investment Decision:Accounting Rate-of-Return Method Boink Corporation manufactures metal…

A: Cost is the expenditure that is incurred in the production of goods and services. It means the raw…

Q: The following cash flows result from a potential construction project for your company: Receipts of…

A: The given data is as follows: Receipts: At the start of contract=$545,000 At the end of…

Q: 7.11 Determine the rate of return for the following cash flow series. N i=? 300 300 300 300 7 12,000…

A: Investment refers to the allocation of resources, typically money, with the expectation of…

Q: ABC Corporation was able to issue 20-year P10,000,000-face value bonds with interest of 8% per…

A: The effective annual interest rate is the real interest rate on credit since it considers the…

Q: Connor Designs Company has net cash flows from operating activities of $425,000 and net cash flows…

A: Free cash flow (FCF) is a measure of a company's ability to generate cash from its operations after…

Q: The following cash flows result from a potential construction project for your company: 1. Receipts…

A: Economic Rates of Return refers to the return that provide a single metric showing how a project's…

Question

- Increases in net working capital
- Capital expenditures
+ Continuation value
= Free cash flow
- 145.00
- 145.00
5.00
?
5.00
10.00
?
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
are 10% higher than forecast? What 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.)

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

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 8 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Question content area top Part 1 A 1,500 square foot house in New Jersey costs $1,400 each winter to heat with its existing oil-burning furnace. For an investment of $4,000, a natural gas furnace can be installed, and the winter heating bill is estimated to be $800. If the homeowner's MARR is 7% per year, what is the discounted payback period of this proposed investment?
A loan of nominal amount £200000 in bonds of nominal amount £100 is to be repaid by 20 annual drawings, each of 100 bonds, the first drawing being 1 year after the issue date. Interest will be payable quarterly in arrears at the rate of 8% per annum. Redemption will be at par for the first 10 drawings and at 140% thereafter. An investor, who will be liable to income tax at the rate of 10%, purchases the entire loan on the issue date at a price to obtain a yield per annum of 5% net effective. What price does the investor pay for the entire loan?
17) A professional photographer who specializes in wedding-related activities paid $24,800 for equipment that has a $2,000 estimated salvage value after five years. He estimates that his operating costs associated with hosting an event amount to $50 per day. If he charges $300 per day for his services, how many days (rounded up to the next integer) per year must he be employed in order to break even at an interest rate of 10% per year? (*
What is the net present value and IRR on a project costing $1000, providing a net cash flow of $400 per year for 5 years, with a required rate of return of 5%:1 ) NPV-1731, IRR of approximately 18% 2) NPV- 334, IRR of approximately 11% 3) NPV 732, IRR of approximately 28%4) None of the above
A project has an initial cost of $65,000, expected net cash inflows of $11,000 per year for 12 years, and a cost of capital of 11%. What is the project's MIRR? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.