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 $1.9 million 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): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses -Depreciation = Net operating income - Income tax = Net income 1 28.000 16.800 11.200 1.280 1.600 8.3200 2.912 5.408 2 28.000 16.800 11.200 1.280 1.600 8.3200 2.912 5.408 ... 9 28.000 16.800 11.200 1.280 1.600 8.3200 2.912 5.408 10 28.000 16.800 11.200 1.280 1.600 8.3200 2.912 5.408 b. If the cost of capital for this project is 11%, what is your estimate of the value of the new project? Value of project = S 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 $1.9 million 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): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses -Depreciation = Net operating income - Income tax = Net income 1 28.000 16.800 11.200 1.280 1.600 8.3200 2.912 5.408 2 28.000 16.800 11.200 1.280 1.600 8.3200 2.912 5.408 ... 9 28.000 16.800 11.200 1.280 1.600 8.3200 2.912 5.408 10 28.000 16.800 11.200 1.280 1.600 8.3200 2.912 5.408 b. If the cost of capital for this project is 11%, what is your estimate of the value of the new project? Value of project = S million (Round to three decimal places.).
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 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 $1.9 million 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):
Sales revenue
- Cost of goods sold
= Gross profit
- General, sales, and administrative expenses
-Depreciation
= Net operating income
- Income tax
= Net income
1
28.000
16.800
11.200
1.280
1.600
8.3200
2.912
5.408
2
28.000
16.800
11.200
1.280
1.600
8.3200
2.912
5.408
...
9
28.000
16.800
11.200
1.280
1.600
8.3200
2.912
5.408
10
28.000
16.800
11.200
1.280
1.600
8.3200
2.912
5.408
b. If the cost of capital for this project is 11%, what is your estimate of the value of the new project?
Value of project = S million (Round to three decimal places.).
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