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 consultant's report on your desk, and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $21 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): Sales revenue -Cost of goods sold = Gross profit - General, sales, and administrative expenses -Depreciation = Net operating income -Income tax = Net income 1 30.000 18.000 12.000 12.000 1.680 1.680 2.100 2.100 8.2200 8.2200 2.877 2.877 5.343 5.343 2 30.000 18.000 *** 9 30.000 18.000 12.000 1.680 2.100 8.2200 2.877 5.343 10 30.000 18.000 12.000 1.680 2,100 8.2200 2.877 5.343 CELES b. If the cost of capital for this project is 15%, what is your estimate of the value of the new project? Value of project = $ million (Round to three decimal places.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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 consultant's report on your desk,
and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $21 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):
Sales revenue
-Cost of goods sold
= Gross profit
- General, sales, and administrative expenses
- Depreciation
= Net operating income
Income tax
= Net income
1
30.000
18.000
2
30.000
18.000
12.000 12.000
1.680
1.680
2.100
2.100
8.2200
2.877
8.2200
2.877
5.343
5.343
...
9
30.000
18.000
12.000
1.680
2.100
8.2200
2.877
5.343
10
30.000
18.000
12.000
1.680
2.100
8.2200
2.877
5.343
***
b. If the cost of capital for this project is 15%, what is your estimate of the value of the new project?
Value of project = $ million (Round to three decimal places.)
Transcribed Image Text:K 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 consultant's report on your desk, and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $21 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): Sales revenue -Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income Income tax = Net income 1 30.000 18.000 2 30.000 18.000 12.000 12.000 1.680 1.680 2.100 2.100 8.2200 2.877 8.2200 2.877 5.343 5.343 ... 9 30.000 18.000 12.000 1.680 2.100 8.2200 2.877 5.343 10 30.000 18.000 12.000 1.680 2.100 8.2200 2.877 5.343 *** b. If the cost of capital for this project is 15%, what is your estimate of the value of the new project? Value of project = $ million (Round to three decimal places.)
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