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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

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 $1.900 million for this report, and I am not sure their analysis makes sense. Before we spend the $19.700 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 $6.047
million per year for 10 years, the project is worth $60.470 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 $12.600 million in working capital up front (year 0), which will be fully recovered in year 10. Next, you see
they have attributed $1.576 million of selling, general, and administrative expenses to the project, but you know that $0.788 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.)
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