Answered step by step
Verified Expert Solution
Question
1 Approved Answer
please make answer clear You are a manager at Northern Fiber, which is considering expanding its operations in synthetic fiber manufacturing Your boss comes into
please make answer clear
You are a manager at Northern Fiber, which is considering expanding its operations in synthetic fiber manufacturing Your boss comes into your office crops a consultant's report on your desk and complains. "We owe these consultants $12 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 me your opinion." You open the report and find the following estimates (in millions of dollars) (Click on the con located on the top right corner of the data table below in order to copy its contents into a spreadsheet) Earnings Forecast (S000,000) Sales revenue Cost of goods sold Gross profit Selling general and administrative expenses Depreciation Net operating income Income tax Net income Project Year 1 2 33.000 33 000 19.800 19.800 13.200 13.200 1.600 1.600 2.000 2000 9.6000 96000 3.36 3.36 6.240 6.240 9 33.000 19 800 13 200 1.600 2.000 9 6000 3.36 6.240 10 33.000 19.800 13 200 1 600 2.000 96000 3.36 6.240 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 Canada Revenue Agency allows a CCA rate of 45% on the equipment for tax purposes. The report concludes that because the project will increase earnings by 56 240 million per year for ten years, the project is worth 5624 million You think back to your halcyon days in finance class and realize there is more work to be donel First, you note that the consultants have not factored in the fact that the project will require 512 million in working capital upfront (year ), which will be fully recovered in year 10 Next, you see they have attributed $1.6 million of selling, general and administrative expenses to the project, but you know that 50 8 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 Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started