FUND.OF CORP.FINANCE PKG. F/BU >C<
16th Edition
ISBN: 9781323165997
Author: Berk
Publisher: PEARSON C
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Chapter 9, Problem 29P
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 12% to evaluate this project. Based on extensive research, it has prepared the incremental
a. For this base-case scenario, what is the
| 1 | Year | 0 | 1-9 | 10 |
| 2 | Revenues | 100.0 | 100.0 | |
| 3 | Manufacturing Expenses (other than |
-35.0 | -35.0 | |
| 4 | Marketing Expenses | -10.0 | -10.0 | |
| 5 | Depreciation | -15.0 | -15.0 | |
| 6 | EBIT | 40.0 | 40.0 | |
| 7 | Taxes @35% | -14.0 | -14.0 | |
| 8 | Unlevered Net Income | 26.0 | 26.0 | |
| 9 | Depreciation | +15.0 | +15.0 | |
| 10 | Additions to Net Working Capital | -5.0 | -5.0 | |
| 11 | Capital Expenditures | -150.0 | ||
| 12 | Continuation Value | +12.0 | ||
| 13 | Free Cash Flow | -150.0 | 36.0 | 48.0 |
b. Based on input from the marketing department. Bauer is uncertain about its revenue
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 rev- enues, manufacturing expenses, and marketing expenses are as given in the table for year 1 and grow by 2% per year every year starting in year 2. Management also plans to assume 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 alternative assumptions? How does the NPV change if the revenues and operating expenses grow by 5% per year rather than by 2%?
d. To examine the sensitivity of this project to the discount rate, management would like to compute the NPV for different discount rates. Create a graph, with the dis- count rate on the x-axis and the NPV on the y-axis, for discount rates ranging from 5% to 30%. For what ranges of discount rates does the project have a positive NPV?
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Write in memo format a response to your Manager, based on the information presented below for the Duncan Company and also based on your additional research. Your Manager has advised you to make any assumptions where necessary.
Duncan Company is a large manufacturer and distributor of cake supplies. It is based in United Kingdon (Headquarters) It sends supplies to firms throughout the United States and the Caribbean . It markets its supplies through periodic mass mailings of catalogues to those firms. Its clients can make orders over the phone and Duncan ships the supplies upon demand. The main competition for Duncan’s comes from one U.S. firm and one Canadian firm. Another British firm has a small share of the U.S. market but is at a disadvantage because of its distance. The British firm’s marketing and transportation costs in the U.S. market are relatively high. a) Duncan Company plans to penetrate either the Canadian market or two other Caribbean Countries (Jamaica and Haiti). What…
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Chapter 9 Solutions
FUND.OF CORP.FINANCE PKG. F/BU >C<
Ch. 9 - Prob. 1CCCh. 9 - Prob. 2CCCh. 9 - Prob. 3CCCh. 9 - 4. Why do we focus on incremental revenues and...Ch. 9 - Prob. 5CCCh. 9 - Prob. 6CCCh. 9 - Prob. 7CCCh. 9 - Prob. 8CCCh. 9 - What is sensitivity analysis?Ch. 9 - How does scenario analysis differ from sensitivity...
Ch. 9 - Prob. 11CCCh. 9 - Prob. 12CCCh. 9 - Prob. 1CTCh. 9 - Prob. 2CTCh. 9 - Prob. 3CTCh. 9 - Prob. 4CTCh. 9 - Prob. 5CTCh. 9 - Prob. 6CTCh. 9 - Prob. 7CTCh. 9 - How is sensitivity analysis performed and what is...Ch. 9 - Prob. 1DCCh. 9 - Prob. 2DCCh. 9 - Determine the IRR of the project and the NPV of...Ch. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Prob. 9PCh. 9 - Prob. 10PCh. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 21PCh. 9 - Prob. 22PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Prob. 26PCh. 9 - Prob. 27PCh. 9 - You are a manager at Percolated Fiber, which is...Ch. 9 - Bauer industries is an automobile manufacturer....Ch. 9 - Prob. 30PCh. 9 - Prob. 31PCh. 9 - What kind of real option does the XC-900 machine...Ch. 9 - Prob. 33P
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