Question You wa manager at Percoledberwhich is considering expanding its operations in synthetic fiber mandating. Your bons come into your clien, drops con million for his report, and I am not sure or analysis makes sense Before we spend the $20 million on we report on your desk and compens We owe these conwarts $1.6 n troded for this project, look over and give me your opinion. You open the report and find the following millions of dollars matin Project Year Earnings Forecast Sales Revenge 36.000 35.000 - Cost of Goods Sold 21.000 21.000 -Gross Profit 14000 14000 - General Sales and Administrative Expenses 1656 1656 -Depreciation Net Operating Income 10274 10.274 10 274 10.274 -Income Tax 3.500 3.500 a. Given the available information, what are free cash flows in years ohrough 10 that should be used to evaluate the proposed project The free cash flow for years on Round to three decimal places) The free cash flow for years 100 milion Round to the decimal places) The free cash Row for year 10 million (Pound to decimal places) b. the cost of capital for this project is 11 what is your estimate of the value of the new project? the cost of capital for this project is 11%, the value of the project is million (Round to three decimal places The free cash flow for year is million. (Round to three decimal places.) The free cash flow for years 1 to 9 is $ million (Round to three decimal places.) The free cash flow for year 10 is $ million. (Round to three decimal places.) b. If the cost of capital for this project is 11%, what is your estimate of the value of the new project? If the cost of capital for this project is 11%, the value of the project is $ million (Round to three decimal places.) You M accept the project. (Choose from the drop-down menu.) Enter your answer in each of the answer boxes. Yunan P million for this report, and on millions of dollars! o e, with a com the way p any to performing the bermaduring Your boas come into your des co m ptes your desk, and correoween $18 . Bebe we spend the $20.7 millor an engineered for his projed, bok over and give me your opinion. You open the report and led the flowing it in Project You . 2 14000 14000 Earnings Foncast Sales Revenue -Cost of Goods Sold -Gon Pot -General Sales and Administrative Expres -Depreciation Net Operating hoone -Income To 2070 2070 1958 2070 10274 3.5% 1890 2070 10274 35% 1074774 39953593 All of the estimates in the report sem comnd You note that the consutarts used straight line depreciation for the new equipment that will be purchased today year(), which is what the accounting department recommended. They also calculated the depreciation assuming to selvage value for the equipment. The pot conduces that because the project will researings by $6.678 milion per year for 10 years, the project is worth $88.78 lion. You think back to you glory days in france dass and realize there is more work to be done! First, you note that the constarts have no duded the fedhat the project will require $12.7 million in working capital to fort(year O), which will be lyecovered in year 10. Nat you see they werbled 51.666 millon osaling general, and administrative perses bote project, but you know that $0 28 million of his amount is overhead he will be incurred even if the project is not accepted. Finally, you know that couring contings are not the right thing to focus ol 2. Given the motor what the we can fons in yours trough 10 that should be used to with the proposed pro b. The cost of capital for this project is 11%, what is your estimated the of the new prod? a. Given the available information, what are the free cash flows in years through 10 that should be used to evaluate the proposed project? The free cash flow for year is million (Round to three decimal places.) The free cash flow for years 1 to 9 is s million (Round to three decimal places.) The free cash flow for year 10 is $ milion. (Round to three decimal places.) b. W the cost of capital for this project is 11%, what is your estimate of the value of the new project? If the cost of capital for this project is 11%, the value of the project is million (Round to three decimal places) 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 $1.6 million for this report, and I am not sure their analysis makes sense. Before we spend the $ 20.7 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): 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. They also calculated the depreciation assuming no salvage value for the equipment. The report concludes that because the project will increase earnings by $ 6.678 million per year for 10 years, the project is worth $ 66.78 million. You think back to your glory 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 ital up front (year O), which will be fully recovered in year 10. Next, you see they have attributed $ 1.656 million of selling general, and administrative expenses to the project, but you know that $ 0.828 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 % 11%, what is your estimate of the value of the new project? 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 O is million (Round to three decimal places.) The free cash flow for years 1 to 9 is million (Round to three decimal places.) The free cash flow for year 10 is million (Round to three decimal places.) b. If the cost of capital for this project is 11 what is your estimate of the value of the new project? If the cost of capital for this project is 11 % the value of the project is million (Round to three decimal places.) V28X JX 1 Earnings Forecast Yr 2 Sales Revenue 3 - Cost of Goods Sold Gross Profit 5 - General, Sales and Administrative expens 6 - Depreciation Net Operating Income - Income Tax Net Income S12... 3535 2121 14 14 1.656 1.656 2.07 2.07 10.274 10.274 3.596 3.596 6.678 6.678 9 10 3535 21 21 14 14 1.656 1.656 2.072.07 10.274 10.274 3.596 3.596 6.678 6.678 1 (in Millions) min