You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultants report on your desk, and complains "we owe these consultants $1.2 million for this report and I am not sure their analysis makes sense. before we spend $30 million, look it over. you open the report and find this chart:

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ou 1 2 9 10 Sales revenue 35.000 35.000 35.000 35.000 - Cost of goods sold 21.000 21.000 21.000 21.000 Gross profit 14.000 14.000 14.000 14.000 - General, sales, and administrative expenses 2.400 2.400 2.400 2.400 - Depreciation 3.000 3.000 3.000 3.000 = Net operating income 86000 8.6000 8.6000 8.6000 -Income tax 301 3.01 3.01 3.01 Net income 5.500 5.590 5.590 5.590 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. CRA allows a CCA rate of 45% on the equipment for tax purposes. The report concludes that because the project will increase earnings by $5.500 million per year for ten years, the project is worth $55.9 million. You think back to your glory b. If the cost of capital for this project is 11%, what is your estimate of the value of the new project? Value of project = $million (Round to three decimal places.) ed: ore Que ou 1 2 9 10 Sales revenue 35.000 35.000 35.000 35.000 - Cost of goods sold 21.000 21.000 21.000 21.000 Gross profit 14.000 14.000 14.000 14.000 - General, sales, and administrative expenses 2.400 2.400 2.400 2.400 - Depreciation 3.000 3.000 3.000 3.000 = Net operating income 86000 8.6000 8.6000 8.6000 -Income tax 301 3.01 3.01 3.01 Net income 5.500 5.590 5.590 5.590 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. CRA allows a CCA rate of 45% on the equipment for tax purposes. The report concludes that because the project will increase earnings by $5.500 million per year for ten years, the project is worth $55.9 million. You think back to your glory b. If the cost of capital for this project is 11%, what is your estimate of the value of the new project? Value of project = $million (Round to three decimal places.) ed: ore Que