Chat with support 24/7


Professional Custom Essay Writing Service

Order from the best essay help service in the whole world!

...content here............

Bauer Industries

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): Year 0 Years 1-9 Year 10 Revenues 100.0 100.0 – Manufacturing expenses (other than depreciation) -35.0 -35.0 – Marketing expenses -10.0 -10.0 – Depreciation -15.0 -15.0 = EBIT 40.0 40.0 – Taxes (35%) -14.0 -14.0 = Unlevered net income 26.0 26.0 + Depreciation + 15.0 + 15.0 – Additions to working capital – 5.0 – 5.0 – Capital expenditures – 150.0 + Continuation value + 12.0 = Free cash flow – 150.0 36.0 48.0 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 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 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?”

Need a Professional Writer to Work on Your Paper and Give you Original Paper? CLICK HERE TO GET THIS PAPER WRITTEN

Place a custom essay order similar to this or any related topic. NB: The assignment paper will be written from scratch as per your instructions and it will be 100% original. It will pass all plagiarism check.

endwhile; ?>

Check Our Prices

Free Quote



All kinds of papers in all subject areas

We can successfully deal with all kinds of school assignments corresponding to various academic disciplines. Among these school papers are:

  • Custom essays
  • Dissertations and theses (undergraduate, Master's, PhD)
  • Research and term papers
  • Courseworks and case studies
  • Admission essays and personal statements, etc.
University of Nairobi