Question: Please use excel and show calculations You are a Manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. With your

Please use excel and show calculations

You are a Manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. With your Group team accompanying you, your Boss, Mr. Moneypockets, asks you to come to his office, where he gives you a consultant's report and complains, "We owe these consultants $1 million for this report, and I am not sure their analysis makes sense. Before we spend the $25 million on new equipment needed for this project, look it over with your team and give me your opinion." You open the report and find the estimates at the bottom of page 268 (in your textbook).

So, continue with this case at the top of page 269, and answer these questions:

YEAR 0 1 2 7 8 9 10
Sales 30,000 30,000 30,000 30,000 30,000 30,000 30,000
COGS 18,000 18,000 18,000 18,000 18,000 18,000 18,000
Gross Profit 12,000 12,000 12,000 12,000 12,000 12,000 12,000
SGA 2,000 2,000 2,000 2,000 2,000 2,000 2,000
Deprecation 2,500 2,500 2,500 2,500 2,500 2,500 2,500
Net operating income 7,500 7,500 7,500 7,500 7,500 7,500 7,500
Income Tax 2,625 2,625 2,625 2,625 2,625 2,625 2,625
Net Income 4,875 4,875 4,875 4,875 4,875 4,875 4,875

a) given the available information, what are the free cash flows in years 0 through 10 that should be used to evaluate the project?

b) if the cost of capital for the project (that is, the WACC) is 13%, what is your estimate of the NPV for the new project? How does the IRR compare to the required WACC? Would you recommend to Mr. Moneypockets that this project be undertaken, and why?

c) what are some uncertainties in the FCFs that your team might see in these (presumed to be 100% correct) NPV and IRR metrics, that could cause them to not be as deterministic as you and your team are basically assuming in your presentation to Mr. Moneypockets?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!