Score: 6 of 10 pts Question Help P 9-31 (book/static) 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 51.4 milion for this report, and I am not sure their analysis makes sense. Before we spend the S288 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 Earnings Forecast 1 2 9 10 Sales Revenue 34.000 34.000 34000 34.000 - Cost of Goods Sold 20.400 20.400 20.400 20.400 Gross Profit 13.600 13.600 13.600 13.600 - General, Sales and Administrative Expenses 2.304 2.304 2.304 2.304 - Depreciation 2.880 2.880 2 880 2.880 = Net Operating Income 8.416 8.416 8.416 8.416 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 is $ million (Round to three decimal places.) Enter your answer in the answer box and then click Check Answer 4 parts remaining Clear All Check Answer al Policy and Practice BRUIS 051 e Score: 6 of 10 pts 4. W P 9-31 (book/static) Question Help sel WOOL L. Luuu = Net Operating Income 8.416 8.416 8.416 8.416 -Income Tax 2.946 2.946 2.946 2.946 - Net Income 5.470 5.470 5.470 5.470 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 ed concludes that because the project will increase earnings by $5.470 million per year for 10 years, the project is worth $54.70 million. You think back to your glory days in finance class and realize there is more work to be done! Of First, you note that the consultants have not included the fact that the project will require 57.6 million in working capital up front (year o), which will be jully recovered in year 10 Next, you see they have attributed 52 304 milion of selling general, and administrative expenses to the project, but you know that $1.152 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 through 10 that should be used to evaluate the proposed project? b. If the cost of capital for this project is 15%, what is your estimate of the value of the new project? a. Given the valable information, what are the free cash flows in years o through 10 that should be used to evaluate the proposed project? on The free cash flow for year is s million (Round to three decimal places) on On on On Enter your answer in the answer box and then click Check Answer 4 parts remaining Clear All Check