Question continued:

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. This report concludes that because the project will increase earnings by $3.575 million per year for 10 years, the project is worth $35.75 million.

First you note that the consultants have not factored in the fact that the project will require $9 million in working capital up front (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 milliok of this amount is overhead that will be incurred even if the project is not accepted.

Question:

a. What are the free cash flaws in years 0 through 10 that should be used to evaluate the proposed project?

Problem 9-17a Question Help You are a manager at Northern Fre, which is considering expanding its operations in synthetic fibre manufacturing Your boss comes into your tice, drops constants report on your desk and complain. We are se constants $1.4 million for this report, and I am not sure the analysis makes Before we spend the $25 million on eweupet eded for this project, took over and give me your opinion You open the port and find the following estimates in millions of dollars) 1 2 9 10 les revenue 25.000 25.000 25.000 -Cost of goods sold 15.000 15.000 Groot 10 000 10.000 10000 10.000 - Generales and answers 2000 2000 2000 2.500 2.500 2.500 2500 -Net operating come 5.500 5.500 105 Net income 3.575 3575 3575 355 15.000 15.000 -Income