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 $1.8 million for this report, and I am not sure their analysis makes sense. Before we spend the $17 million on new equipment needed for this project, lookit over and give me your opinion." You open the report and find the following estimates (in millions of dollars):Sales revenueCost of goods sold= Gross profit- General, sales, and administrative expenses- Depreciation= Net operating income- Income tax= Net income130.00018.00012.0001.3601.7008.9400 8.94003.1293.1295.8115.811230.00018.00012.0001.3601.700930.00018.00012.0001.3601.7008.94003.1295.8111030.00018.00012.0001.3601.7008.94003.1295.811b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project?Value of project = $million (Round to three decimal places.)

Here,The cost of the Project is $17 millionThe net income of the Project is $5.811…

Answered: You are a manager at Northern Fibre,…

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

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

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 $1.8 million for this report, and I am not sure their analysis makes sense. Before we spend the $19 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 2 25.000 25.000 15.000 15.000 10.000 10.000 1.520 1.520 1.900 1.900 6.5800 2.303 4.277 6.5800 2.303 4.277 9 25.000 15.000 10.000 1.520 1.900 6.5800 2.303 4.277 10 25.000 15.000 10.000 1.520 1.900 6.5800 2.303 4.277 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the…
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 $1.3 million for this report, and I am not sure their analysis makes sense. Before we spend the $18 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 2 35.000 35.000 21.000 21.000 14.000 14.000 1.440 1.440 1.800 1.800 10.760 10.760 3.766 3.766 6.994 6.994 9 35.000 21.000 14.000 1.440 1.800 10.760 3.766 6.994 10 35.000 21.000 14.000 1.440 1.800 10.760 3.766 6.994 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the…
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 $17 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 1 2 28.000 28.000 16.800 16.800 11.200 11.200 1.360 1.360 1.700 1.700 8.1400 8.1400 9 28.000 16.800 11.200 1.360 1.700 8.1400 10 28.000 16.800 11.200 1.360 1.700 8.1400 b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project? Value of project = $ million (Round to three decimal places.)
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 $1.6 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 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 2 34.000 34.000 20.400 20.400 13.600 13.600 2.320 2.320 2.900 2.900 8.380 8.380 2.933 2.933 5.447 5.447 9 34.000 20.400 13.600 2.320 2.900 8.380 2.933 5.447 10 34.000 20.400 13.600 2.320 2.900 8.380 2.933 5.447
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 $1.4 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 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 = 1 33.000 19.800 13.200 2.320 2.900 7.980 2.793 2 33.000 19.800 13.200 2.320 2.900 7.980 2.793 9 33.000 19.800 13.200 2.320 2.900 7.980 2.793 10 33.000 19.800 13.200 2.320 2.900 7.980 2.793 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…
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 $1.6 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 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 2 32.000 32.000 19.200 19.200 12.800 12.800 2.320 2.900 2.320 2.900 7.580 7.580 2.653 2.653 4.927 4.927 ... 9 32.000 19.200 12.800 2.320 2.900 7.580 2.653 4.927 10 32.000 19.200 12.800 2.320 2.900 7.580 2.653 4.927 a. Given the available information, what are the free cash flows in years 0 through 10 that should be used to evaluate the…
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 $1.6 million for this report, and I am not sure their analysis makes sense. Before we spend the $26 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 2 1 29.000 29.000 17.400 17.400 11.600 11.600 2.080 2.080 2.600 2.600 6.920 6.920 2.422 2.422 4.498 4.498 10 9 29.000 29.000 17.400 17.400 11.600 11.600 2.080 2.080 2.600 2.600 6.920 2.422 4.498 6.920 2.422 4.498 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…
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 $28 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 31.000 18.600 2 31.000 18.600 12.400 2.240 12.400 2.240 2.800 2.800 7.360 7.360 2.576 2.576 4.784 4.784 9 31.000 18.600 12.400 2.240 2.800 7.360 2.576 4.784 10 31.000 18.600 12.400 2.240 2.800 7.360 2.576 4.784 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…
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 $1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $26 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 2 1 25.000 25.000 15.000 15.000 10.000 10.000 2.080 2.080 2.600 5.3200 1.862 2.600 5.3200 1.862 3.458 3.458 9 25.000 15.000 10.000 2.080 2.600 5.3200 1.862 3.458 10 25.000 15.000 10.000 2.080 2.600 5.3200 1.862 3.458 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…
You are a manager at Northern 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 $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 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 ($000,000s) 1 2 . . . 9 10 Sales revenue 25.000 25.000 25.000 25.000 −Cost of goods sold 15.000 15.000 15.000 15.000 =Gross profit 10.000 10.000 10.000 10.000 −Selling, general, and…
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 $25 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 33.000 19.800 2 33.000 19.800 13.200 13.200 2.000 2.000 2.500 2.500 8.7000 8.7000 3.045 3.045 5.655 5.655 9 33.000 19.800 13.200 2.000 2.500 8.7000 3.045 5.655 10 33.000 19.800 13.200 2.000 2.500 8.7000 3.045 5.655 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the…
You are a manager at Northem 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 $1.3 million for this report, and I am not sure their analysis makes sense. Before we spend the $24 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): 2 10 Sales revenue 29.000 17.400 29.000 29.000 29.000 - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income 17.400 17.400 17.400 11.600 1.920 2.400 11.600 11.600 11.600 1.920 1.920 1.920 2.400 2.400 2.400 7.2800 7.2800 7.2800 7.2800 - Income tax 2.548 2.548 2.548 2.548 = Net income 4.732 4.732 4.732 4.732 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS