8.

8. You are a manager at Northem Fibre, which is considering expanding its operations in syntretic fibre manufacturing Your boss comes into your office, drops a consultants report on your desk, and complains, "We owe these consultants $1.4militon for this report, and I am not sure their analysis makes senso. Botore wo spond the $24 milion 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): 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 0), which is what the accounting department recommended for financial reporting purposes. CRA allows a CCA rate of 45% on the equipment for tax. purposes. The report concludes that because the project will increase eamings by 55.772 million per year for 10 years, the project is worth $57.72 milion. You think back to your giory days in finance ciass and realize there is more work to be dona! First you note that the consultants have not factored in the fact that the project will require 58 million in working capital up front (year 0). which will be fully recovered in year 10 . Next you seo they have attributed $1.92 million of selling. general and administrative expenses to the project, but you know that $0.96 miltion of this amount is overhead that wil be incurred even if the projoct is not accepted. Finally. you know that accounting earnings are not the right thing to focus on! a. Given the avalable information, what are the free cash flows in years 0 through 10 that should be used to evaluate the proposed project? a. Given the avalable 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 $ The free cash flow for year 1 is $ The free ofysh flow for yoar 2 is 5 The free cash flow for year 3 is 5 The free cash fow for year 4 is 5 The free cash how for year 5 is 5 The free cash flow for yoar 6 is $ The free cash flow for year 7 is 5 The free cash flow for year 8 is 5 The free cash flow for year 9 is $ The free cash flow for year 10 is 5 miltion. (Round to three decimal places, and enter a decrease as a negative number.) milion. (Round to three decimal places, and enter a decrease as a negative number.) mision. (Round to three decimal places, and enter a decrease as a negatwe number.) milion. (Round to three decimal ploces, and enter a decrease as a negative number.) milion. (Round to three decimal places, and enter a decrease as a negative number.) milien. (Round to three decimal places, and enter a docrease as a negative number.) million. (Round to three decimal places, and enter a decrease as a negative number.) million. (Round to three decimal places, and enter a decrease as a negative number) millon. (Round to three decimal places, and enter a decrease as a negative number) milion. (Round to three decinal places, and enter a decrease as a negative number.) milion. (Round to three decimal places, and enter a decrease as a negative number.)