accostod. Finally you know thet accounting eamings are not the right ting to focus ont b. If the cost of capilal for this preject is 11%, whet is your estimate of the value of the new preject? Data table (Click on the following icon D in order to copy its contents into a spreadsheet) 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 if villion. (Round to three decimal places.) The free cash flow for year 10 is 5 million. (Round to three decimal places.) b. If the cost of capital for this project is 10%, what is your estimate of the value of the new project? If the cost of capital for this project is 10%, the NPV of the project is : million. (Round to three decimal places.) You accept the project. (Select from the drop-down menu.) 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 $1.200 milion for this report, and I am not sure their analysis makes sense. Before we spend the $18.600 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): As of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchesed today (year o), which is what the accourting department recommended. They also calculated the depreciation assuming no salvage value for the equipment. The report concludes that because the project will increase earnings by 56.519 milion per year for 10 years, the project is worth $65.190 million. You think back to your plory days in finance class and realize there is more work to be done! First, you note that the consultants have not included the fact that the project will require $8.600 million in warking capital up front (year 0 ), which will be fully recovered in yoar 10 . Nexd, you see they have attribuled \$1.488 milion of selling. general, and administrative expenses to the project, but you know that $0.744 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 project? b. If the cost of capital for this project is 11%, what is your estimate of the value of the new project
