Buhler Industries is a farm implement manufacturer. Management is currently evaluating a proposal to build a plant
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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 to evaluate this project. Based on extensive research, it has prepared the following incomplete incremental free cash flow projectionsin millions of dollars:
Free Cash Flow$s
Year
Years dash
Year
Revenues
minusManufacturing expensesother than depreciation
minus
minus
minusMarketing expenses
minus
minus
minusCCA
equalsEBIT
minusTaxes
equalsUnlevered net income
plusCCA
minusIncreases in net working capital
minus
minus
minusCapital expenditures
minus
plusContinuation value
equalsFree cash flow
minus
The relevant CCA rate for the capital expenditures is Assume assets are never sold.
a For this basecase 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 higher than forecast? What is the NPV of this project if revenues are lower than forecast?
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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 $
enter your response here million.Round to two decimal places.
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