Question
You are a manager at Percolated Fiber, which is considering expanding its operations by starting a new project. Your boss said to you We already
You are a manager at Percolated Fiber, which is considering expanding its operations by starting a new project. Your boss said to you We already owe these consultants $2.3 million, and all they estimated is Net Income. Before we spend $14 million on new equipment for this project, look the report over and give me your opinion. Here are the reports estimates (in millions of dollars; note that the question is continued below, so you need to scroll down to see it
all):
1 2
Sales revenue
94.0 94.0
- Cost of goods sold
49.0
49.0
Gross profit
45.0
45.0
-Selling, gen. & admin. exp. 9.8 9.8
-Depreciation 7.07.0
Net operating income 27.2 27.2
- Income tax
4.2
4.2
Net Income
23.0
23.0
Everything that the consultants have calculated is correct, as far as it goes (in other words, you do NOT need to recalculate Net Income). The project will require
$9
million in working capital upfront (year 0), which will be fully recovered in the last year of the project (year 2).
What are the correct free cash flows (FCFs) to be used when evaluating this project? Report them in millions of dollars, not in dollars.
[Note: This is a Professor-generated problem, so you do not have the usual "Show Me An Example" in MFL. However, you have several examples of how to do this, because this problem is worked more than once in the Slides. See the Chapter 9 Part 1 slides, especially subsets 9D and 9E.]
Question content area bottom
Part 1
The first relevant period's FCF is:enter your response here
The second relevant period's FCF is:enter your response here
The third relevant period's FCF (if any) is:enter your response here
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