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10 ... anuaA of goods sold s profit ral, sales, and administrative expenses aciation perating income ne tax 25.000 25.000 25.000 25.000 15.000 15.000 15.000 15.000 10.000 10.000 1.280 1.600 10.000 10.000 1.280 1.600 1.280 1.280 1.600 7.1200 1.600 7.1200 7.1200 7.1200 2492 2.492 2.492 2.492

10 ... anuaA of goods sold s profit ral, sales, and administrative expenses aciation perating income ne tax 25.000 25.000 25.000 25.000 15.000 15.000 15.000 15.000 10.000 10.000 1.280 1.600 10.000 10.000 1.280 1.600 1.280 1.280 1.600 7.1200 1.600 7.1200 7.1200 7.1200 2492 2.492 2.492 2.492

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 milion for this report, and I am not sure their analysis makes sense. Before we spend the $16 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) 10 Sales revenue 25.000 25.000 25.000 25.000 - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income 15.000 15.000 15.000 15.000 10.000 10.000 10.000 10.000 1.280 1.280 1.280 1.280 1.600 1.600 1.600 1.600 7.1200 7.1200 7.1200 7.1200 2.492 - Income tax 2.492 2.492 2.492 b. If the cost of capital for this project is 16%, what is your estimate of the value of the new project? Value of project = $ million (Round to three decimal places.)
Transcribed Image Text: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 milion for this report, and I am not sure their analysis makes sense. Before we spend the $16 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) 10 Sales revenue 25.000 25.000 25.000 25.000 - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income 15.000 15.000 15.000 15.000 10.000 10.000 10.000 10.000 1.280 1.280 1.280 1.280 1.600 1.600 1.600 1.600 7.1200 7.1200 7.1200 7.1200 2.492 - Income tax 2.492 2.492 2.492 b. If the cost of capital for this project is 16%, what is your estimate of the value of the new project? Value of project = $ million (Round to three decimal places.)
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