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Date Submitted: 05/31/2011 08:00 AM
Capital Budgeting
Vicki Rose
Strayer University
Dr. Karaffa
FIN 534
April 29, 2011
Capital Budgeting
This paper will discuss Chapter 7 problem 23. The paper will show how to calculate the problem. The paper will also summarize the problem.
Problem 23
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 the 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 |100 |
|- Manufacturing Expenses | | | |
|(other than Depreciation) | |-35 |-35 |
|-Marketing expenses | |-10 |-10 |
|-Depreciation | |-15 |-15 |
|= EBIT | |40 |40 |
|-Taxes 35% | |-14 |-14 |
|= Unlevered in net working capital | |26 |26 |
|+Depreciation | |15 |15 |
|-Increases in net working capital | |-5 |-5 |
|-Increases in net working capital | | | |
|-Capital Expenditures |-150 | | |
|+ Continuation Value | ...