a) Calculate the gross profit for Year 1-10.

b) Calculate the net operating income for Year 1-10.

c) Calculate the income tax for Year 1-10.

d) Calculate the net income for Year 1-10.

e) Calculate the sum of the cost of the machine and the change in the net working capital (happens in Year 0 and 10).

f) Calculate the cash flow in Year 0 - 10.

g) Calculate the NPV of this project.

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 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 and give me your opinion." You open the report and find the following estimates (in thousands of dollars): All of the estimates in the report seem correct. You note that the consultants used straightline depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended. You think back to your days in finance class and realize there is more work to be done! First, you note that the consultants have not factored in that the project will require $10 million in working capital upfront (year 0 ), which will be fully recovered in year 10 . Next, you see they have attributed $2 million of selling, general and administrative expenses to the project, but you know that $1 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on! a. Given the available information, what are the free cash flows in years 0 through 10 that should be used to evaluate the proposed Minus General, sales and administrative expense Cost of machine plus change in net working capital Equals cash flow b. If the cost of capital for this project is as follows, what is your estimate of the NPV of the new project? Cost of capital NPV 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 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 and give me your opinion." You open the report and find the following estimates (in thousands of dollars): All of the estimates in the report seem correct. You note that the consultants used straightline depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended. You think back to your days in finance class and realize there is more work to be done! First, you note that the consultants have not factored in that the project will require $10 million in working capital upfront (year 0 ), which will be fully recovered in year 10 . Next, you see they have attributed $2 million of selling, general and administrative expenses to the project, but you know that $1 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on! a. Given the available information, what are the free cash flows in years 0 through 10 that should be used to evaluate the proposed Minus General, sales and administrative expense Cost of machine plus change in net working capital Equals cash flow b. If the cost of capital for this project is as follows, what is your estimate of the NPV of the new project? Cost of capital NPV