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?