Question 12, Problem 9-17b > HW Score: 33.33%, 5 of 15 points Points: 0 of 1 Save You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.3 million for this report, and I am not sure their analysis makes sense. Before we spend the $30 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): 1 2 9 10 Sales revenue 31.000 31.000 31.000 31.000 - Cost of goods sold 18.600 18.600 18.600 18.600 = Gross profit 12.400 12.400 12.400 12.400 - General, sales, and administrative expenses 2.400 2.400 2.400 2.400 - Depreciation 3.000 3.000 3.000 3.000 = Net operating income 7.0000 7.0000 7.0000 7.0000 - - Income tax 2.45 2.45 2.45 2.45 = Net income 4.550 4.550 4.550 4.550 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 30% on the equipment for tax purposes. The report concludes that because the project will increase earnings by $4.550 million per year for ten years, the project is worth $45.5 million. You think back to your glory days in finance class and realize there is more work to be done! First you I note that the consultants have not factored in the fact that the project will require $7 million in working capital up front (year 0), which will be fully recovered in year 10. Next you see they have attributed $2.4 million of selling, general and administrative expenses to the project, but you know that $1.2 million of this amount is overhead that will be b. If the cost of capital for this project is 13%, what is your estimate of the value of the new project?