23. Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plan 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| Year 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|
-Increases in net 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 PV of the project if revenues are 10% higher than forecast? What is the NPV is 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...

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Capital Budgeting
QRB/501
July 25, 2013
On this paper the reader will be able to find the rationale in the analysis of a specific capital budgeting case study. Definitions along with explanations related to capital budgeting such as Internal Rate of Return (IRR) and Net Present Value (NPV) will be provided and debriefed. It is extremely relevant to mention that capital budgeting allows the companies to analyze one or...

...Capital Budget Recommendation
Anne Adams
University of Phoenix
Managerial Accounting and Legal Aspects of Business
AC543
Sean DAmico
August 20, 2012
Abstract
This paper will give a comparison between the various preferred capital budgeting evaluation techniques in the corporate business setting. There will be a recommendation given for the Guillermo Furniture Company based on the results of one or more evaluation techniques, which in turn will help...

...Capital Budgeting
Part I
PV= FV / (1+i)^y PV= present value, FV= future value, i= discount rate, and y= time.
1a) If the discount rate is 0%, what is the projects net present value?
Year Cash Flow Discount Rate Discounted Cash Flow
0 -$400,000 0% -$400,000
1 $100,000 0% $100,000
2 $120,000 0% $120,000
3 $850,000 0% $850,000
Answer: The projects net present value is $670,000
If the discount rate...

...Week 4 Discussion Question 1b
Introduction
Capital budgeting is one of the most crucial decisions the financial manager of any firm is faced with...Over the years the need for relevant information has inspired several studies that can assist firms to make better decisions. These models are assigned so that they make the best allocation of resources. Early research shows that methods such as payback model was more widely used which is basically just determining the length of...

...Question a
What is capital budgeting? Are there any similarities between a firm’s capital budgeting decisions and an individual’s investment decisions?
Capital budgeting is the process of analyzing potential additions to fixed assets. Capital budgeting is very important to firm’s future because of the fixed asset investment decisions chart a company’s course for the future. The firm’s capital budgeting process is very...

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Capital Budgeting
FINC 620 - Financial Management
May 19, 2014
Introduction
According to Investopedia, capital budgeting is the process in which an organization decides whether certain large projects, such as building an addition or purchasing large equipment, are worth the investment (Capital budgeting, 2014). If capital budgeting in not...

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Capital Budgeting Analysis Project
MBA 612
The General Capital Budgeting Process and how it is implemented within Organizations
The general capital budgeting process is the tool by which an organization determines its choice of investments through analyzing and evaluating its cash in and out flows. The capital budget process is vital to the organizations mere...

...including;
What long-term investments should the firm undertake (capital budgeting) and how will investment and finance decisions affect the firm's value (valuation)?
How can cash be raised for the required investments? This is known as the financing decision' (cost of capital, capital structure and leasing).
How will the firm manage its day-to-day cash and financial affairs (short-term financing and net working capital)?...

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