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 $1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $15 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 ($000,000s) Sales revenue -Cost of goods sold Gross profit - General, sales, and administrative expenses -Depreciation -Net operating income - Income tax 29.000 29.000 17.400 17.400 11.600 .600 1.200 1.200 1.500 1.500 8.9000 8.9000 3.115 3.115 29.000 29.000 17.400 17.400 1.600 11.600 1.200 1.500 8.9000 8.9000 3.115 1.200 1.500 3.115 -Net operating income - Income tax 8.9000 8.9000 3.115 3.115 5.785 5.785 8.9000 8.9000 3.115 5.785 5.785 3.115 Net income 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 or financial reporting purposes. Canada Revenue Agency a ows a CCA rate o 30% on he equipment for tax purposes. The report concludes hat because the project will increase earnings by $5.785 million per year for ten years, the project is worth $57.85 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 factored in the fact that the project will require $11 million in working capital up front (year 0), which wll be fully recovered in year 10. Next, you see they have attributed $1.2 mllion of selling, general and administrative expenses to the project, but you know that $0.6 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting eamings 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? 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 $1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $15 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 ($000,000s) Sales revenue -Cost of goods sold Gross profit - General, sales, and administrative expenses -Depreciation -Net operating income - Income tax 29.000 29.000 17.400 17.400 11.600 .600 1.200 1.200 1.500 1.500 8.9000 8.9000 3.115 3.115 29.000 29.000 17.400 17.400 1.600 11.600 1.200 1.500 8.9000 8.9000 3.115 1.200 1.500 3.115 -Net operating income - Income tax 8.9000 8.9000 3.115 3.115 5.785 5.785 8.9000 8.9000 3.115 5.785 5.785 3.115 Net income 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 or financial reporting purposes. Canada Revenue Agency a ows a CCA rate o 30% on he equipment for tax purposes. The report concludes hat because the project will increase earnings by $5.785 million per year for ten years, the project is worth $57.85 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 factored in the fact that the project will require $11 million in working capital up front (year 0), which wll be fully recovered in year 10. Next, you see they have attributed $1.2 mllion of selling, general and administrative expenses to the project, but you know that $0.6 million of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting eamings 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