Question
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops aconsultant's
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops aconsultant'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 $ 27 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):
(Click on the Icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)
Project Year | ||||||
Earnings Forecast ($ million) | 1 | 2 | . . . | 9 | 10 | |
Sales revenue | 33.000 | 33.000 | 33.000 | 33.000 | ||
minusCost of goods sol | 19.800 | 19.800 | 19.800 | 19.800 | ||
equals=Gross profit | 13.200 | 13.200 | 13.200 | 13.200 | ||
minusSelling, general, and administrative expense | 2.160 | 2.160 | 2.160 | 2.160 | ||
minusDepreciation | 2.700 | 2.700 | 2.700 | 2.700 | ||
equals=Net operating income | 8.340 | 8.340 | 8.340 | 8.340 | ||
minusIncome tax | 2.919 | 2.919 | 2.919 | 2.919 | ||
equals= Net unlevered income 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 0 is _____million. (Round to three decimal places and enter a decrease as a negative number.) | 5.421 | 5.421 | 5.421 | 5.421 |
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