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 $1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $28.3 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): Project Year Earnings Forecast Sales Revenue -Cost of Goods Sold Gross Profit - General, Sales and Administrative Expenses - Depreciation Net Operating Income - Income Tax 2 10 30.000 30.000 30.000 30.000 18.000 12.000 2.264 2.830 18.000 18.000 18.000 12.000 2.264 2.830 6.906 12.000 12.000 2.264 2.264 2.830 6.906 2.830 6.906 6.906 2.417 2.417 2417 2.417 Net Income 4.489 4,489 4.489 4,489 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 O is S million. (Round to three decimal places.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 consultant's report on your desk, and complains, "We owe these consultants $1.7 million for this report, and I am not sure their analysis makes sense. Before we
spend the $28.3 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):
Project Year
Earnings Forecast
1
2
9
10
Sales Revenue
30.000
30.000
30.000
30.000
Cost of Goods Sold
18.000
18.000
18.000
18.000
-
= Gross Profit
12.000
12.000
12.000
12.000
- General, Sales and Administrative Expenses
- Depreciation
2.264
2.264
2.264
2.264
2.830
2.830
2.830
2.830
= Net Operating Income
6.906
6.906
6.906
6.906
- Income Tax
2.417
2.417
2.417
2.417
= Net Income
4.489
4.489
4.489
4.489
...
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.)
Transcribed Image Text: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 $1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $28.3 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): Project Year Earnings Forecast 1 2 9 10 Sales Revenue 30.000 30.000 30.000 30.000 Cost of Goods Sold 18.000 18.000 18.000 18.000 - = Gross Profit 12.000 12.000 12.000 12.000 - General, Sales and Administrative Expenses - Depreciation 2.264 2.264 2.264 2.264 2.830 2.830 2.830 2.830 = Net Operating Income 6.906 6.906 6.906 6.906 - Income Tax 2.417 2.417 2.417 2.417 = Net Income 4.489 4.489 4.489 4.489 ... 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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