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% toevaluate 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- Marketing expenses- CCA= EBITYear 0 Years 1-9 Year 10- Manufacturing expenses (other than depreciation)96.00-38.0096.00- 38.00- 11.00- 11.00?????????- 5.00- 5.00-146.0010.00- 146.00?- Taxes (35%)= Unlevered net income+ CCA-Increases in net working capital- Capital expenditures+ Continuation value= Free cash flowThe 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 isthe 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?

The net present value involves estimating future earnings to determine if an item is worthwhile to…

Answered: a. For this base-case scenario, what is…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

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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): 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.)
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?
eBook 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: $20 million Sales revenues Operating costs Interest expense 16 million 2 million The company has a 25% tax rate, and its WACC is 13%. 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 $
eBook 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 $20 million Operating costs 18 million Interest expense 2 million The company has a 25% tax rate, and its WACC is 11%. Write out your answers completely. For example, 13 million should be entered as 13,000,000. What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest dollar. 5 If this project would cannibalize other projects by $ 1.5 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 $.
Texas Farm Corporation is considering two projects of machinery that perform the same task. The required rate of return for these projects is $10%. The projects’ expected cash flows are as follows: Year Machine A ($) Machine B ($) 0 (17,000) (17,000) 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 Based on the above information, you are required to make an analysis for the decision of Capital Budgeting based on the following techniques: Net Present Value, NPV Profitability Index, PI
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.
Dock Company is considering a capital investment in machinery: E (Click the icon to view the data.) 8. Calculate the payback. 9. Calculate the ARR. Round the percentage to two decimal places. 10. Based on your answers to the above questions, should Dock invest in the machinery? 8. Calculate the payback. Payback years - X Data Table Initial investment $ 1,500,000 Residual value 350,000 Expected annual net cash inflows 500,000 Expected useful life 4 years Required rate of return 9% Print Done
- calculate the minimum payback period - calculate the NVP of the projected cash flow - calculate the internal rate of return (IRR) Project Description and Details Project Cost (Initial Investment) First Year Cash Flow Annual Growth Rate (5 years) Expenses as a percentage of Revenues Payback Period NPV IRR This company is based in Massachusetts and distributes their flavored seltzers nationally. While they have a large, loyal customer following, the company has exchanged hands multiple times. The current owners want out of the business, but it is uncertain as to why this is the case. The company is undervalued and the sale price reflects this. $15,000,000 $8,500,250 3.25% 54% Year 0 Cash Flow Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Year 4 Cash Flow Year 5 Cash Flow Projected Revenues at annual growth rate Projected Expenses at 54% of Revenue Annual Cash Flows Discount rate for each year (6%)…
project shouluU across the four years to generate an NPV in excess of £100,000? funds? 12-6s. (Calculating project cash flows and NPV) Weir's Trucking, Inc., is considerio machine would result in an increase in earnings before interest and taxes of $25.0m per year. To operate this machine properly, workers would have to go throuch a training session that would cost $5,000 after taxes. In addition, it would cost $5.00 after taxes to install this machine correctly. Also, because this machine is extremel efficient, its purchase would necessitate an increase in inventory of $25,000. This machine has an expected life of 10 years, after which it would have no salvage value. Finally, to purchase the new machine, it appears that the firm would have to borrow $80,000 at 10 percent interest from its local bank, resulting in additional interest payments of $8,000 per year. Assume the use of the simplified straight-line method to depreciate this machine down to zero, a 34 percent marginal tax…
Ivanhoe 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 -$3,046,900 1 803,710 2 889,200 3 1,247,600 4 1,285,160 5 1,576,500 What is the NPV of this project? - NPV $?
. Cols Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project: Sales revenues $15 million Operating costs (excluding depreciation) 10.5 million Depreciation 3 million Interest expense 3 million The company has a 40% tax rate, and its WACC is 11%. What is the project’s cash flow for the first year (t = 1)? If the tax rate dropped to 30%, what is the project’s cash flow for the first year (t = 1)?
You are working as a finance manager for a construction company. The company is considering to buy a new machine which is expected to boost its revenue. A supplier offered two alternative machinery options for the company’s choice. Each machine will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 10.5%. The cash flows of the projects are provided below. Machinery option 1 Machinery option 2 Cost $235,000 $272,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 85 000 91 000 98 000 94 000 86 000 93 000 95 000 98 000 97 000 83 000 Required: Identify which option of equipment should the company accept based on Profitability Index (PI) method? Identify which machinery option should the company accept based on simple pay back method if the payback criterion is maximum 2.5 years? If the company’s management would like to know how much each machinery option can improve the…

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