Score: 0 of 1 pt 8 of 11 (8 complete HW Score: 72.73%, 8 of 1 1 pts Problem 9-17b Question Help You are a manager at Northem 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 $1.7 million for this report, andI am not sure their analysis makes sense. Before we spend the S21 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): Project Year Eamings Forecast (S000,000s) Sales revenue -Cost of goods sold - Gross profit - General, sales, and administrative expenses 10 30.000 30.000 18.000 8.000 12.000 2.000 1.680 1.680 2.100 2.100 8.2200 8.2200 2.877 2877 30.000 30.00O 18.000 8.000 12.000 2.000 1.680 2.100 8.2200 8.2200 2.877 1.680 2.100 Depreciation Net operating income - Income tax 2.877 b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project? Value of project-Smllon (Round to three decimal places.) Enter your answer in the answer box and then click Check Answer - Depreciation 2.100 2.100 8.2200 8.2200 2.877 2.877 5.3435.343 2.100 8.2200 8.2200 2.877 5.343 2.100 Net operating income Income tax - Net income 2.877 5.343 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 o 20% on the equipment or tax purposes. The report concludes that because the pr ect will increase earnings by 5343 million per year or ten years, the ect is worth $5343 milion. 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 factored in the fact that the project will require S15 million in working capital up front (year 0), which will be fully recovered in year 10. Next, you see they have attributed $1.68 million of selling, general and administrative expenses to the project, but you know that $0.84 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting carnings are not the right thing to focus on! b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project? b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project? Value of project-$L1 million (Round to three decimal places.) nter your answer in the answer box and then click Check Answer. Score: 0 of 1 pt 8 of 11 (8 complete HW Score: 72.73%, 8 of 1 1 pts Problem 9-17b Question Help You are a manager at Northem 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 $1.7 million for this report, andI am not sure their analysis makes sense. Before we spend the S21 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): Project Year Eamings Forecast (S000,000s) Sales revenue -Cost of goods sold - Gross profit - General, sales, and administrative expenses 10 30.000 30.000 18.000 8.000 12.000 2.000 1.680 1.680 2.100 2.100 8.2200 8.2200 2.877 2877 30.000 30.00O 18.000 8.000 12.000 2.000 1.680 2.100 8.2200 8.2200 2.877 1.680 2.100 Depreciation Net operating income - Income tax 2.877 b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project? Value of project-Smllon (Round to three decimal places.) Enter your answer in the answer box and then click Check Answer - Depreciation 2.100 2.100 8.2200 8.2200 2.877 2.877 5.3435.343 2.100 8.2200 8.2200 2.877 5.343 2.100 Net operating income Income tax - Net income 2.877 5.343 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 o 20% on the equipment or tax purposes. The report concludes that because the pr ect will increase earnings by 5343 million per year or ten years, the ect is worth $5343 milion. 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 factored in the fact that the project will require S15 million in working capital up front (year 0), which will be fully recovered in year 10. Next, you see they have attributed $1.68 million of selling, general and administrative expenses to the project, but you know that $0.84 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting carnings are not the right thing to focus on! b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project? b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project? Value of project-$L1 million (Round to three decimal places.) nter your answer in the answer box and then click Check