10 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 $1.8 million for this report, and I am not sure their analysis makes sense. Before we spend the $27.5 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 millions of dollars): Project Year Earnings Forecast 1 Sales Revenue 28.000 28.000 28.000 28.000 - Cost of Goods Sold 16.800 16.800 16.800 16.800 = Gross Profit 11.200 11.200 11.200 11.200 - General, Sales and Administrative Expenses 2.200 2.200 2.200 2.200 - Depreciation 2.750 2.750 2.750 2.750 = Net Operating Income 6.250 6.250 6.250 6.250 - Income Tax 2.188 2.188 2.188 2.188 = Net Income 4.062 4.062 4.062 4.062 a. Given the available information, what are the free cash flows in years 0 through 10 that should be used to evaluate the proposed project? The free cash flow for year 0 is $ million. (Round to three decimal places.) The free cash flow for years 1 to 9 is $1 million. (Round to three decimal places.) The free cash flow for year 10 is $1 million. (Round to three decimal places.) b. If the cost of capital for this project is 14%, what is your estimate of the value of the new project? If the cost of capital for this project is 14%, the value of the project is $1 million. (Round to three decimal places.) You V accept the project. (Choose from the drop-down menu.)