Bauer Industries Free Cashflow Projections
July 19, 2011 Leave a comment
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 following incremental free cash flow projections (in millions of dollars):
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, Bauer is uncertain about its revenue forecast. In particular, management would like to examine the sensitiviry 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 if revenues are 10 lower than forecast?
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 revenues, 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 discount 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?
ANSWERS AVAILABLE. (Instant Download)
Price of Answer: Just US$ 6 only
Need Assistance !! email us at caresolvemyquestion.com
If you need any other type of help regarding Homework, Assignments, Projects, Case study, Essay writing then email us at firstname.lastname@example.org We will get back to you very soon.
You might also like:
- Net Present Value (NPV) Calculations Using Each Model (solvemyquestion.com)
- Fundamentals of Capital Budgeting: Billingham Packaging Production Capacity (solvemyquestion.com)
- MINI CASE THE POWER TO COOL OFF IN FLORIDA Indiantown Cogeneration Project (solvemyquestion.com)
- Summary of MediSys Corp.: The IntensCare Product Development Team Summary (solvemyquestion.com)