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 - 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.)

NPV It is a capital budgeting tool to decide on whether the capital project should be accepted by…

uhler 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. xtensive research, it has prepared the following incomplete incremental free cash flow projections (in millions of dollars): 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 Year 10 113.00 -37.00 -8.00 ? ? -5.00 113.00 - 37.00 - 8.00 2 2 ? -5.00

uhler 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. xtensive research, it has prepared the following incomplete incremental free cash flow projections (in millions of dollars): 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 Year 10 113.00 -37.00 -8.00 ? ? -5.00 113.00 - 37.00 - 8.00 2 2 ? -5.00

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 8P: Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley...

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