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 $1.6 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): A C D E F G 1 Project Year 10 32 2... 2 Earnings Forecast ($000,000s) 3 Sales revenue 4 - Cost of goods sold 5 Error: Error evaluating expression: Gross profit 6 - Selling, general, and administrative expenses 7- Depreciation 8 Error: Error evaluating expression: Net operating income 1 32 32 32 19.2 19.2 19.2 19.2 12.8 1.52 1.9 12.8 12.8 12.8 1.52 1.52 1.52 1.9 9.38 1.9 9.38 1.9 9.38 9.38 9 |- Income tax 1.876 1.876 1.876 1.876 10 Error: Error evaluating expression: Net unlevered income 7.504 7.504 7.504 7.504 11 12 13 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 $. b. If the cost of capital for this project is 9 % what is your estimate of the value of the new project? million.

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