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P 9-31 (book/static) Question Help You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, We owe these consultants $1.3 million for this report, and I am not sure their analysis makes sense. Before we spend the $19.2 million on new equipment needed for this project, look it over and give me your opinion. You open the report and find the following estimates (in milions of dollars Project Year Earnings Forecast 1 2 9 10 Sales Revenue 26.000 26.000 26.000 26.000 - Cost of Goods Sold 15.600 15.600 15,600 15,600 Gross Profit 10.400 10.400 10.400 10.400 -General Sales and Administrative Expenses 1.536 1.536 1.536 1.536 -Depreciation 1.920 1.920 1.920 1.920 = Net Operating Income 6.944 6.944 6.944 6.944 - Income Tax 243 2.43 243 2.43 Net Income 4.514 4.514 4.514 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year ), which is what the accounting department recommended. They also calculated the depreciation assuming no salvage value for the equipment. The report condudes that because the project will increase earnings by $4.514 million per year for 10 years, the project is worth $45.14 million. You think back to your glory days in finance class and realize there is more work to be donet First, you note that the consultants have not included the fact that the project will require 59.4 million in working capital up front year O), which will be fully recovered in year 10. Next you see they have attributed $1.536 million of selling general, and administrative expenses to the project, but you know that 50.768 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on a. Given the available information, what are the free cash flows in years through 10 that should be used to evaluate the proposed project? b. If the cost of capital for this project is 8%, what is your estimate of the value of the new project? a. Given the available information, what are the free cash flows in years through 10 that should be used to evaluate the proposed project? The tree cash flow for year is smilion (Round to three decimal places) P 9-31 (book/static) Question Help You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, We owe these consultants $1.3 milion for this report, and I am not sure their analysis makes sense. Before we spend the $19.2 million on new equipment needed for this project, look it over and give me your opinion. You open the report and find the following estimates in milions of dolar Project Year Earnings Forecast 1 2 9 10 Sales Revenue 26.000 26.000 26.000 26.000 - Cost of Goods Sold 15.600 15.600 15.600 15.600 -Gross Profit 10.400 10.400 10.400 10.400 - General, Sales and Administrative Expenses 1.536 1.536 1.536 1.536 -Depreciation 1.920 1.920 1.920 1.920 -Net Operating Income 6.944 6.944 6.944 6.944 -Income Tax 2.43 2.43 2.43 2.43 Not Income 4.514 4.514 4.514 4.614 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year o), which is what the accounting department recommended. They also calculated the depreciation assuming no salvage value for the equipment. The report concludes that because the project will increase samnings by 54.514 million per year for 10 years, the project is worth $45.14 million. You think back to your glory days in finance class and realize there is more work to be done! First, you note that the consultants have not included the fact that the project will require $9.4 million in working capital up front (year C), which will be fully recovered in year 10. Next, you see they have attributed $1.536 million of selling general, and administrative expenses to the project, but you know that 50.768 million of this amount is overhead that will be incurred even the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on Given the available information, what are the free cash flows in years through 10 that should be used to evaluate the proposed project? b. If the cost of capital for this project is 8%, what is your estimate of the value of the new project? ..Given the available information, what are the free cash low in years through 10 that should be used to evaluate the proposed project? The tree cash flow for your ois millon. (Round to three decimal places.) Viewan Bample You are a manager at Percoated Fiber, which considering expanding sperations in synthetic fiber manufacturing Your boss comes into your office. crops aconha port on your desk and companies these consultants 52.1 million for this report andiam not sure their ways makes sense. Before send the $312 Million on wonent reeded for this project, bookt over and give me your opinion. You open the report and find the blowing stint in million dollar Project Year Earnings Forecast 10 Sales Revenue 36.000 38.000 38.000.000 - Cost of Goods Sold 21500 21500 21.600 21.600 Gross Proft 14 400 14400 14.00 14.400 -General Sales and Administrative Expenses 2496 -Depreciation 3.120 3120 Net Operating income 8.754 74 8.784 - Income Tax 3014 2014 2.074 Not Income 5.7905710 5.710 All of the estimates in the report sem correct. You note that the counted straight-line depreciation for the new equipment that will be purchased today (year), which is what the accounting department recommended. They also calculated the depreciation assuming no salvage value for the equipment. The report concludes that because the project will increase caminge by $5.710 million per year for 10 years, the project is worth $57.10 milion You Think back to your glory days in finance class and realize there is more work to be done! First, you note that the consultants have not included the fact that the project will require 56.8 million in working capital up front (year o which will be Mly recovered in year 10. Next, you see they obuted 52.486 milion of selling. general, and administrative expenses to the project, but you know that $1248 million of the amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting aming we not the right thing to focus on! . Given the valabile information, what are the free cash fows in years through 10 that should be used to evaluate the proposed project? 6. If the cost of capital for this project is 17%, what is your estimate of the value of the new project? a. Given the available information, what are the tree cash fows in you through 10 that should be used to evaluate the proposed project? Free cash flows for years 0 to 10 are (in millions of dollars) 5.710 0.811 3.120 10 5.710 0.811 3.120 Free Cash Flow -Net income 5.710 5.710 Overhead (after tax at 35%) 0.311 Depreciation 3.120 -Capex 31.200 - Inc in NWC 8.800 Free Cash Flow - 35.000 9.641 9.641 b. If the cost of capital for this project is 178 what is your estimate of the project To computate Pol each for in the future use the blowing formule PV (PCF) 9.641 - 6.800 16.441 FOR Therefore NPV* - 598.00 min 1 38 64 miliona (1) San if the cost of capital for this project is 17%. the viole projet 4.30 in P 9-31 (book/static) Question Help You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, We owe these consultants $1.3 million for this report, and I am not sure their analysis makes sense. Before we spend the $19.2 million on new equipment needed for this project, look it over and give me your opinion. You open the report and find the following estimates (in milions of dollars Project Year Earnings Forecast 1 2 9 10 Sales Revenue 26.000 26.000 26.000 26.000 - Cost of Goods Sold 15.600 15.600 15,600 15,600 Gross Profit 10.400 10.400 10.400 10.400 -General Sales and Administrative Expenses 1.536 1.536 1.536 1.536 -Depreciation 1.920 1.920 1.920 1.920 = Net Operating Income 6.944 6.944 6.944 6.944 - Income Tax 243 2.43 243 2.43 Net Income 4.514 4.514 4.514 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year ), which is what the accounting department recommended. They also calculated the depreciation assuming no salvage value for the equipment. The report condudes that because the project will increase earnings by $4.514 million per year for 10 years, the project is worth $45.14 million. You think back to your glory days in finance class and realize there is more work to be donet First, you note that the consultants have not included the fact that the project will require 59.4 million in working capital up front year O), which will be fully recovered in year 10. Next you see they have attributed $1.536 million of selling general, and administrative expenses to the project, but you know that 50.768 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on a. Given the available information, what are the free cash flows in years through 10 that should be used to evaluate the proposed project? b. If the cost of capital for this project is 8%, what is your estimate of the value of the new project? a. Given the available information, what are the free cash flows in years through 10 that should be used to evaluate the proposed project? The tree cash flow for year is smilion (Round to three decimal places) P 9-31 (book/static) Question Help You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, We owe these consultants $1.3 milion for this report, and I am not sure their analysis makes sense. Before we spend the $19.2 million on new equipment needed for this project, look it over and give me your opinion. You open the report and find the following estimates in milions of dolar Project Year Earnings Forecast 1 2 9 10 Sales Revenue 26.000 26.000 26.000 26.000 - Cost of Goods Sold 15.600 15.600 15.600 15.600 -Gross Profit 10.400 10.400 10.400 10.400 - General, Sales and Administrative Expenses 1.536 1.536 1.536 1.536 -Depreciation 1.920 1.920 1.920 1.920 -Net Operating Income 6.944 6.944 6.944 6.944 -Income Tax 2.43 2.43 2.43 2.43 Not Income 4.514 4.514 4.514 4.614 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year o), which is what the accounting department recommended. They also calculated the depreciation assuming no salvage value for the equipment. The report concludes that because the project will increase samnings by 54.514 million per year for 10 years, the project is worth $45.14 million. You think back to your glory days in finance class and realize there is more work to be done! First, you note that the consultants have not included the fact that the project will require $9.4 million in working capital up front (year C), which will be fully recovered in year 10. Next, you see they have attributed $1.536 million of selling general, and administrative expenses to the project, but you know that 50.768 million of this amount is overhead that will be incurred even the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on Given the available information, what are the free cash flows in years through 10 that should be used to evaluate the proposed project? b. If the cost of capital for this project is 8%, what is your estimate of the value of the new project? ..Given the available information, what are the free cash low in years through 10 that should be used to evaluate the proposed project? The tree cash flow for your ois millon. (Round to three decimal places.) Viewan Bample You are a manager at Percoated Fiber, which considering expanding sperations in synthetic fiber manufacturing Your boss comes into your office. crops aconha port on your desk and companies these consultants 52.1 million for this report andiam not sure their ways makes sense. Before send the $312 Million on wonent reeded for this project, bookt over and give me your opinion. You open the report and find the blowing stint in million dollar Project Year Earnings Forecast 10 Sales Revenue 36.000 38.000 38.000.000 - Cost of Goods Sold 21500 21500 21.600 21.600 Gross Proft 14 400 14400 14.00 14.400 -General Sales and Administrative Expenses 2496 -Depreciation 3.120 3120 Net Operating income 8.754 74 8.784 - Income Tax 3014 2014 2.074 Not Income 5.7905710 5.710 All of the estimates in the report sem correct. You note that the counted straight-line depreciation for the new equipment that will be purchased today (year), which is what the accounting department recommended. They also calculated the depreciation assuming no salvage value for the equipment. The report concludes that because the project will increase caminge by $5.710 million per year for 10 years, the project is worth $57.10 milion You Think back to your glory days in finance class and realize there is more work to be done! First, you note that the consultants have not included the fact that the project will require 56.8 million in working capital up front (year o which will be Mly recovered in year 10. Next, you see they obuted 52.486 milion of selling. general, and administrative expenses to the project, but you know that $1248 million of the amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting aming we not the right thing to focus on! . Given the valabile information, what are the free cash fows in years through 10 that should be used to evaluate the proposed project? 6. If the cost of capital for this project is 17%, what is your estimate of the value of the new project? a. Given the available information, what are the tree cash fows in you through 10 that should be used to evaluate the proposed project? Free cash flows for years 0 to 10 are (in millions of dollars) 5.710 0.811 3.120 10 5.710 0.811 3.120 Free Cash Flow -Net income 5.710 5.710 Overhead (after tax at 35%) 0.311 Depreciation 3.120 -Capex 31.200 - Inc in NWC 8.800 Free Cash Flow - 35.000 9.641 9.641 b. If the cost of capital for this project is 178 what is your estimate of the project To computate Pol each for in the future use the blowing formule PV (PCF) 9.641 - 6.800 16.441 FOR Therefore NPV* - 598.00 min 1 38 64 miliona (1) San if the cost of capital for this project is 17%. the viole projet 4.30 in