Totek
Totek
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
– Manufacturing expenses
– Marketing expenses
– Depreciation
100.0
– 35.0
– 10.0
– 15.0
1 00.0
– 35.0
– 10.0
– 15.0
= EBIT
– Taxes (35%)
– 14.0
– 14.0
= Unlevered net income
+ Depreciation
– Increases in net working capital
– Capital expenditures
+ Continuation value
– 150.0
+15.0