**Text Transcription for Educational Website****Buhler Industries: Evaluating a Manufacturing Plant Proposal**Buhler Industries is considering building a plant for manufacturing lightweight tractors. They plan to evaluate the proposal using a cost of capital of 12%. The following presents the projected incremental free cash flow in millions of dollars:| **Free Cash Flow (\$000,000s)** | **Year 0** | **Years 1–9** | **Year 10** ||-----------------------------|-----------|---------------|-----------|| Revenues | | 115.00 | 115.00 || Manufacturing expenses (other than depreciation) | | -33.00 | -33.00 || Marketing expenses | | -10.00 | -10.00 || CCA | ? | ? | ? || **EBIT** | ? | ? | ? || Taxes (35%) | ? | ? | ? || **Unlevered net income** | ? | ? | ? || + CCA | ? | ? | ? || – Increases in net working capital | | -5.00 | -5.00 || – Capital expenditures | -155.00 | | || **+ Contribution value** | | | 10.00 || **= Free cash flow** | -155.00 | | ? |*The relevant CCA rate for capital expenditures is 10%. Assume assets are never sold.***Analysis Questions:**a. For this scenario, what is the NPV (Net Present Value) of the plant for manufacturing lightweight tractors?b. With input from the marketing department, Buhler is uncertain about the revenue forecast. Management wants to examine the sensitivity of NPV to revenue assumptions. What is the NPV if revenues are 10% higher than forecast?**Instruction on CCA Tax Shield Calculation:**Using the indirect method requires separate calculation for the CCA tax shield. What is the present value of the CCA tax shield?*The present value of the CCA tax shield is \$23.79 million. (Rounded to two decimal places).***Task:**a. For this base-case scenario, what is the NPV of the plant

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

See similar textbooks

Similar questions

Problem 1. What is the estimated rate of return for n this project
solve this parctie problem
How do I determine which is the correct answer for this problem? A company estimates that an average-risk project has a WACC of 10 percent, a below-average-risk project has a WACC of 8 percent, and an above-average-risk project has a WACC of 12 percent. Which of the following independent projects should the company accept? a. Project A has average risk and an IRR = 9 percent. b. Project B has below-average risk and an IRR = 8.5 percent. c. Project C has above-average risk and an IRR = 11 percent. d. All of the projects above should be accepted. e. None of the projects above should be accepted. Please answer fast I give you upvote.
TLT Ltd is considering the purchase of a new machine for use in its production process. Management has developed three alternative proposals to help evaluate the machine purchase. Only one of these proposals can be implemented. Proposals A and B both have the same cost to set up, but the output from proposal A (as measured by future net cash flows) commences at a high rate and then declines over time, while Proposal B starts at a low rate and then increases over time. Proposal C involves buying two of the machines considered under proposal B. That is, proposal C is simply Proposal B scaled by a factor of two. Proposal C results in net cash flows which are similar in magnitude to proposal A's net cash flows in the first two years. The estimated net cash flows, internal rates of return and net present values at 9% and 11% for each proposal are given in the following table. Proposal A -$290,000 $100,000 $90,000 Proposal B -$290,000 $40,000 $50,000 Proposal C -$580,000 $80,000 $100,000 End…
Management Accounting. Solve this
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc.: Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Alpha’s expected future cash flows. To answer this question, Green Caterpillar’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000…
Now that Hurd has more specifically located the source of the economic exposure, Unit B, it is considering ways to hedge this exposure. Since Unit B finances some of its operations, one idea being considered by Hurd management is a change the financial structure of Unit B to a mix of financing in dollars and financing in pounds. Note: Assume the interest rate on pounds is approximately equal to the interest rate on dollars. Career Success Tips ates, Unit B will need revenue of Unit B. TOTAL SCORE: 2/3 more fewer dollars for loan payments, which would partially offset the effect of this appreciation on the Grade Final Step
How can I explain these?
You and another analyst are asked to choose between two projects. Your manager tells you that the opportunity cost of capital is 10%. The other analyst points out that Project B has an IRR of 37.3%, which is much higher than Project A’s IRR of 24.7%, so he thinks Project B is the better project. Do you agree or disagree? Explain your answer. If you disagree with the intern, explain why the other analyst’s logic is incorrect.
Which of the following is FALSE regarding various methods of project analysis? Both NPV and IRR consider the time value of money. Average Accounting Return ignores the time value of money. Payback focuses on liquidity. O Profitability Index is able to rank projects in the situation of capital rationing. () Payback considers the time value of money. Next Page Page 17 of 3 Previous Page Submit Quiz O of 30 questions saved
Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 ($34 million) Below average 0.20 (16 million) Average 0.50 12 million Above average 0.20 16 million Boom 0.05 28 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. E(NPV): million σNPV: million CV:
Use the information provided to answer the questions.Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. QUESTION) Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places). INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Project A Project BInitial cost R300 000 R300 000Scrap value R40 000 0Depreciation per year R52 000 R60 000Net profitYear 1 R20 000Year 2 R30 000Year 3 R50 000Year 4 R60 000Year 5 R10 000Net cash flowsYear 1 R90 000Year 2 R90 000Year 3 R90 000Year 4 R90 000Year 5 R90 000 Additional informationThe discount rate used by the company is 12%. Transcribed Image Text:Number of Periods 1 2 3 4 5 6 7 8 m 10 11 12 13 14 15 1% 2% 0.9901 0.9804 0.9709 3% 3.9020 3.8077…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS