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 extensiveresearch, it has prepared the following incomplete incremental free cash flow projections (in millions of dollars):Year 0Free Cash Flow ($000,000s)Revenues- Manufacturing expenses (other than depreciation)- Marketing expenses- CCA= EBIT- Taxes (35%)= Unlevered net income+CCA- Increases in net working capitalCapital expenditures+ Continuation value= Free cash flow- 148.00- 148.00Years 1-9 Year 1094.00- 39.00- 8.00???2?- 5.00?94.00- 39.00- 8.00?????- 5.0012.00?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 are10% higher than forecast? What is the NPV of this project if revenues are 10% lower than forecast?a. For this base-case scenario, what is the NPV of the plant to manufacture lightweighttractors?The NPV is $ million. (Round to two decimal places.)CUsing 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 $30.64 million. (Round to two decimal places.)

Net present value is determined by deducting the initial investment from the current value of cash…

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 is the NPV of this project if revenues are 10% lower than forecast?

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 is the NPV of this project if revenues are 10% lower than forecast?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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 = EBIT - Taxes (35%) = Unlevered net income + CCA - Increases in net working capital - Capital expenditures + Continuation value = Free cash flow - 155.00 Years 1-9 Year 10 115.00 - 33.00 - 10.00 ? ? 2 ? ? - 5.00 115.00 - 33.00 - 10.00 ? ? ? 2 ? ? -5.00 10.00 ? - 155.00 The relevant CCA rate for the capital expenditures is 10%. 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…
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 ZAT = EBIT P - Taxes (35%) = Unlevered net income Dow + CCA - Increases in net working capital - Capital expenditures + Continuation value = Free cash flow - 155.00 - 155.00 Years 1-9 Year 10 117.00 - 31.00 - 10.00 2 ? = ? ? ? ? - 5.00 ? 117.00 - 31.00 - 10.00 ? 7 ? ? ? = ? n ? -5.00 12.00 ? The relevant CCA rate for the capital expenditures is 15%. 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…
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 = EBIT - Taxes (35%) = Unlevered net income + CCA - Increases in net working capital - Capital expenditures + Continuation value = Free cash flow - 146.00 - 146.00 Years 1-9 Year 10 106.00 - 30.00 - 9.00 ? ? ? ? ? - 5.00 ? 106.00 - 30.00 - 9.00 ? ? ? ? ? - 5.00 10.00 ? The relevant CCA rate for the capital expenditures is 10%. 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…
In your first job with TBL Inc. your task is to consider a new project whose data are shown below. What is the project's Year 1 cash flow? The annual operating cash flows of the project can be calculated as follows: OCF = {[Sales - Operating Costs]*(1-Tax Rate)} + (Depreciation * Tax Rate) Sales revenues $225,250 Depreciation $78,847 Other operating costs $92,000 Tax rate 18%
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
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): K Free Cash Flow ($000,000s) Year 0 Years 1-9 Year 10 91.00 - 34.00 91.00 -34.00 - 8.00 - 8.00 ? ? ? ? Revenues - Manufacturing expenses (other than depreciation) -Marketing expenses - CCA = EBIT -Taxes (35%) = Unlevered net income + CCA ??? ??? 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): 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 -Capital expenditures + Continuation value Free cash flow Year 0 -151.00 Years 1-9 Year 10 110.00 - 35.00 - 11.00 ? ? ? ? ? -5.00 110.00 -35.00 - 11.00 ? ? ? ? 2 ? -5.00 12.00 ? -151.00 The relevant CCA rate for the capital expenditures is 15%. 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…
A Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information on the project: eBook Sales revenues $10 million Operating costs 8 million Interest expense 3 million The company has a 25% tax rate, and its WACC is 12%. Write out your answers completely. For example, 13 million should be entered as 13,000,000. a. What is the project's operating cash flow for the first year (t 1)? Round your answer to the nearest dollar. b. If this project would cannibalize other projects by $1 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest dollar. The firm's OCF would now be $
Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information on the project: Sales revenues Operating costs Interest expense The company has a 25% tax rate, and its WACC is 12%. Write out your answers completely. For example, 13 million should be entered as 13,000,000. a. What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest dollar. $ $20 million 16 million 1 million b. If this project would cannibalize other projects by $1 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest dollar. The firm's OCF would now be $
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): The relevant CCA rate for the capital expenditures is 10%. 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 is the NPV of this project if revenues are 10 % lower than forecast?
Blossom Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year Cash Flow 0 -$2,970,000 1 787,610 2 869,600 3 1,030,500 4 1,125,360 5 1,354,000 What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) The NPV is $enter The NPV in dollars rounded to 0 decimal places Should management go ahead with the project? The firm should select an option rejectaccept the project.
Colsen Communications is trying to estimate the first-year cashflow (at Year 1) for a proposed project. The financial staff has collected the following informationon the project:Sales revenues $15 millionOperating costs (excluding depreciation) 10.5 millionDepreciation 3 millionInterest expense 3 millionThe company has a 40% tax rate, and its WACC is 11%.a. What is the project’s cash flow for the first year (t = 1)?b. If this project would cannibalize other projects by $1.5 million of cash flow before taxesper year, how would this change your answer to part a?c. Ignore part b. If the tax rate dropped to 30%, how would that change your answer topart a?

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