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 $1.4 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): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue -Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 31.000 18.600 12.400 2.240 2.800 7.360 1.472 2 31.000 18.600 12.400 2.240 2.800 7.360 1.472 9 31.000 18.600 12.400 2.240 2.800 7.360 1.472 10 31.000 18.600 12.400 2.240 2.800 7.360 1.472 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 $ -39 million. (Round to three decimal places and enter a decrease as a negative number.) The free cash flow for years 1 to 9 is $8.688 million. (Round to three decimal places and enter a decrease as a negative number.)
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 $1.4 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): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue -Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 31.000 18.600 12.400 2.240 2.800 7.360 1.472 2 31.000 18.600 12.400 2.240 2.800 7.360 1.472 9 31.000 18.600 12.400 2.240 2.800 7.360 1.472 10 31.000 18.600 12.400 2.240 2.800 7.360 1.472 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 $ -39 million. (Round to three decimal places and enter a decrease as a negative number.) The free cash flow for years 1 to 9 is $8.688 million. (Round to three decimal places and enter a decrease as a negative number.)
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
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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 $1.4 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): (Click on the following icon in order to copy its contents into a spreadsheet.)
Project Year
Sales revenue
- Cost of goods sold
= Gross profit
- General, sales, and administrative expenses
- Depreciation
= Net operating income
- Income tax
1
31.000
18.600
12.400
2.240
2.800
7.360
1.472
2
31.000
18.600
12.400
2.240
2.800
7.360
1.472
9
31.000
18.600
12.400
2.240
2.800
7.360
1.472
10
31.000
18.600
12.400
2.240
2.800
7.360
1.472
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 $ -39 million. (Round to three decimal places and enter a decrease as a negative number.)
The free cash flow for years 1 to 9 is $8.688 million. (Round to three decimal places and enter a decrease as a negative number.)
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