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You are a manager at Northem Fibre, which is considering expanding its operations in synthetic fibro manufacturing. Your boss comes into your office, drops a

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You are a manager at Northem Fibre, which is considering expanding its operations in synthetic fibro manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, We owe these consultants 51,9 million for this report, and I am not sure their analysis makes sense. Before we spend the $23 mition 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): 1 2. 9 10 Sales revenue 33.000 33.000 33.000 33.000 -Cost of goods sold 19.800 19.800 19.800 19.800 = Gross profit 13.200 13. 200 13.200 13200 - General, sales, and administrative expenses 1.840 1.840 1.840 1 840 -Depreciation 2.300 2.300 2.300 2.300 Net operating income 9.060 9.080 9.060 9.060 - Income tax 3.171 3.171 3.171 3.171 Not income 5.889 5.889 5.889 5.889 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 ). which is what the accounting department recommended for financial reporting purposes. CRA allows a CCA rate of 45% on the equipment for tax purposes. The report concludes that because the project will increase sarcings by $5.889 million per year for 10 years, the project is worth $58.89 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 $13 million in working capital up front year O), which will be fully recovered in year 10. Next you see they have attributed $1.84 million of seling, general and administrative expenses to the project, but you know that $0.92 milion 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 a. Given the available information, what are the tree cash flows in years 0 through 10 that should be used to evaluate the proposed project

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