You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing.

Your boss comes into your office, drops a consultant's report on your desk, and complains, $"$We owe these

consultants $$1\mathrm{.}200$ million for this report, and I am not sure their analysis makes sense. Before we spend the $$25\mathrm{.}600$

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$)$: $.$

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. They

also calculated the depreciation assuming no salvage value for the equipment. The report concludes that because the

project will increase earnings by $$5\mathrm{.}524$ million per year for $10$ years, the project is worth $$55\mathrm{.}240$ 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 included the fact that the project will require $$12\mathrm{.}300$ million in working

capital up front $($year $0),$ which will be fully recovered in year $10.$ Next, you see they have attributed $$2\mathrm{.}048$ million

of selling, general, and administrative expenses to the project, but you know that $$1\mathrm{.}024$ million of this amount is

overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not

the right thing to focus on$!$

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?

b$.$ If the cost of capital for this project is $8\%,$ what is your estimate of the value of the new project?

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.$)$

The free cash flow for years $1$ to $9$ is $$,$ million. $($Round to three decimal places.$)$

Data table

$($Click on the following icon $$ in order to copy its contents into a spreadsheet.$)$