Question: You are working at Peaked Process, which is considering adding a new product line. You thought that you had estimated the complete FCFs (free cash
You are working at Peaked Process, which is considering adding a new product line. You thought that you had estimated the complete FCFs (free cash ows) to evaluate the project, but your assistant has brought up possible effects that you had not yet considered. Here are your current estimates (in millions of dollars; note that the question is continued below. so you need to scroll down to see it all): _0 _1 3 FCF - 59 24 51 Everything that you have calculated is correct as far as it goes, but you need to decide how, if at all, to adjust for the following factors that your assistant has pointed out. First, the project will utilize other equipment that you did not value separately because the equipment is already owned and not being used in other projects. However, the equipment could instead be donated to a charity, for a tax benet of $2 million (in other words, this is the total amount thatyour taxes would decrease by in period 0, if you donated the equipment rather than using it for the project). Or, a second alternative is that the equipment could instead be sold for an aftertax benefit of $1.3 million (in dollars today). Second, there will be additional benefits from this new product line due to increased reputation and attracting new customers who will also start using your existing products. This increased business would have a net (after tax) effect of $6 million per year in added prot from your other products, over the two years you would be producing the new product. Last, much management time has been spent trying to analyze whether or not this new product line is desirable, and you estimate that the opportunity cost of the analysis that has already been done has been around $0.7 million. What are the correct free cash ows (FCFs) to be used when evaluating this project? Report them in millions of dollars, not in dollars. E) The rst relevant period's FCF is: The second relevant period's FCF is: :l The third relevant period's FCF, if any, is
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