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SLN is a subcontractor for automobile constructions. The manager is evaluating a project for a new factory intended for the manufacture of engine blocks for commercial vehicles. The cost of capital for this project is 12%. Anticipated free cash flow (operating cash flow: OCF) is (in thousands of dollars): 6 8 9 1 100 2 100 3 100 4 100 5 100 7 100 10 100 100 100 100 35 35 35 35 35 35 10 35 10 15 10 10 10 10 10 15 15 15 15 15 15 40 40 40 0 Sale figures Consumption of raw materials -Personnel costs -Amortization.. =Operating result..... -Corporation tax (33%)... -Net results in zero debt. +Amortization..; -Variation of BFR -Investmentsits -150 |- Terminal Value L=Cash flow available.. - 150 40 35 10 15 40 13 27 15 -5 35 10 15 40 13 27 15 35 10 15 40 13 27 15 -5 40 13 LUL SUR IS JULIJ 13 40 13 27 15 13 13 40 13 27 15 13 27 15 27 15 27 27 15 15 27 15 -5 -5 -5 -5 -5 -5 -5 12 37 37 37 37 37 37 37 37 37 49 a) According to this scenario, what is the NPV (net present value) of this project? b) The CEO is unsure of his revenue expectations. He wishes to study the sensitivity of NPV to revenue assumptions. What is the NPV of the project if the turnover is 10% lower or higher than current expectations? c) Rather than assuming that the operating cash flows of this project are constant, the CEO would like to analyze the sensitivity of the NPV to growth in turnover and production costs. More precisely, he wishes to study the hypothesis of a 2% increase per year in turnover, consumption of raw materials and personnel costs from year 2. What is the new NPV of the project? What if the increase is 5% per year? d) To analyze the sensitivity of this project to the discount rate, the CEO wants to calculate the NPV for different costs of capital. Draw a graph representing the NPV against the discount rate (between 5% and 30%). For what discount rate range is the NPV positive

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