.11????? ??1:47 ? _HW 7_locx.docx 18. You are a manager at Percolated Fiber, which is considering expanding its operation sin synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk and complains "We owe these consultants $1.1 million for this report and I am not sure their analysis makes sense. Before we spend the $20 million on new equipment needed for this project, look it over and give you opinion." You open the report and find the following estimates (in millions of dollars): Year IYear 2... Year 9 Year 10 OGS G&A 10 10 10 Income Tax nlevered Inco 6.76 6 All the estimates in the report seem correct. You note that the consultants used straight line deprecation for the new equipment that will be purchased today, which is what the accounting department recommended. The report concludes that because the project wl increase earnings by S6.760 per year for ten years, the project is worth S67.6 million. You think back to your halcyon days in finance class and realize there is more work to be done! First you note that the consultants have not factored in the fact the project will require S10 million in working capital upfront (year 0), which will be fully recovered in year 10. Next, they have attributed $1.6 million of SG&A to the project, but you know that $0.8 of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that the accounting earnings are not the right thing to focus on! Given the available information, what are the FCF in year 0 to 10 that should be sued to evaluate the proposed project? b If the cost of capital for this project is 9%, what is your estimate of the value of the new project