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Cou are a managec at Northem Fibre, which is considering expanding ts operations in synthesic fibre manufacturing. Your boss comes into your office, drops a

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Cou are a managec at Northem Fibre, which is considering expanding ts operations in synthesic fibre manufacturing. Your boss comes into your office, drops a consultart's report on your desk and complahs, We owe these consuitants $1.9 millon for this teport, and 1 am not sure their analysis makes sonse. Before we spend the $22 malion on new equipment needed for this project, look 1 t over and ove me your opinion "You open the roport and find the following estirtates (in milions of dollarsk:- A. of the ownyates in the report seem correct You note that the consuitants used stright-tine depreciation for the new equ pment that wil be purchased tocky tyear ol, which is What the accounsng department tecommensed for trancial reporting purposes. CRA alows a CCA rate of 20% on the equipreet for tax purposes. The report concludes that beckuso the prcject will incroase earnings by \$4. 185 milion per year foc ten years, the project is worth 541.86milis. You think back to your glory days in france dass and realize there is more work to be donel First you note that the consultants have not tactored in the fact that the project wit requite $7 milion in working capkal up froet (year of which wit be fully reconered in yeac to. Next you soe thoy have afributed $1.76 milion of selling general and administralve experses to the profect, but you know that $0,89 millon of this amount is overised that wil be incured even it the project is not accested. Finaly, you know that accoureng eacnings ace not the night thing to focus onl b. If the cost of casitai for this erolect is 14%. What is vour estinate of the vilue of the new orclect? b. If the not ot captal for this proyect it 14\%, what is your estumate of the vilue of the new project

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