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%) 40.0

- 14.0 40.0

- 14.0

= Unlevered net income

+ Depreciation

- Increases in net working capital

- Capital expenditures

+ Continuation value

- 150.0

26.0

+15.0

-