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 $28 million on new equipment needed for this project, lookit 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 income1227.000 27.00016.200 16.20010.80010.8002.2402.2402.8002.8005.7605.7602.016 2.0163.7443.744927.00016.20010.8002.2402.8005.7602.0163.7441027.00016.20010.8002.2402.8005.7602.0163.744a. 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, and enter a decrease as a negative number.)

Free Cash Flow is the amount which is earned by the investor from the project. It is that amount of…

Answered: You are a manager at Northern Fibre,…

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

See similar textbooks

Similar questions

Prepare a 1-2 page double spaced memo to the company president, David Morgan (a former top salesperson with no accounting education), recommending the best choice in the following scenario: You have recently been hired as the controller for Sit-Anywhere, a manufacturer of benches used in public parks. The company produces three models with their customizable stainless-steel benches being their fastest growing product. While the company is moderately profitable, its overhead has been growing faster than its sales which has you concerned. The company prices all three products at a 50% margin and has historically allocated fixed costs based on direct labor hours. The figures produced for the last quarter by the previous controller are as follows: Standard Standard Custom Wood Steel Stainless $ 500,000 $ 1,000,000 $ 1,000,000 $ 2,500,000 500,000 500,000 Total Sales Variable Costs 250,000 500,000 500,000 1,250,000 1,250,000 Cont. Margin 250,000 Fixed Costs: DLH 10,000 20,000 20,000 50,000…
When William first pitched a new product idea to his manager, it was very well received because he did such a thorough job of researching and analyzing it. He presented a comprehensive forecast that included both possible and probable levels of returns to be earned from this investment. As a result, the company handed over the money and put William in charge of the project. The company planned to evaluate the investment based on his "probable" forecast. One year into the project, money started getting tight in other divisions of the company. Pressure was on for William to provide some proof that this 3-year investment was starting to work. As of the end of that first year, $12,000 in operating costs and $12,000 in new operating cash inflows (both reflect after-tax amounts) had been realized. William had collected the following information but clearly still only had projections for the remaining 2 years of this project. Estimated (and actual) initial project investment Estimated annual…
Suppose you have been hired as a financial consultant to Defense Electronics, Incorporated (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $3.8 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. The land was appraised last week for $6.9 million on an aftertax basis. In five years, the aftertax value of the land will be $7.3 million, but the company expects to keep the land for a future project. The company wants to build its new manufacturing plant on this land; the plant and equipment will cost $33.5 million to build. The following market data on DEI’s securities are current: Debt: 145,000 bonds with a coupon rate of 6.9 percent outstanding, 22…
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 $1.6 million for this report, and I am not sure their analysis makes sense. Before we spend the $26 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 2 1 29.000 29.000 17.400 17.400 11.600 11.600 2.080 2.080 2.600 2.600 6.920 6.920 2.422 2.422 4.498 4.498 10 9 29.000 29.000 17.400 17.400 11.600 11.600 2.080 2.080 2.600 2.600 6.920 2.422 4.498 6.920 2.422 4.498 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…
Vino plc is considering launching a new product. The company accountant has prepared calculations to show that the NPV of the product is estimated to be positive. She has just discovered, however, that some items of information had not been provided to her prior to carrying out her calculations. They are as follows: 1. The new product will be manufactured in a large factory which has spare capacity and where other products are also manufactured. It has recently been decided by senior management that the new product will be charged with 10% of the factory rent. 2. The new product will be financed partly by a loan. Interest charges are expected to be £80,000 per year. What effect (increase/decrease/no effect) will these new items of information have on the estimated NPV of the product? Item 1 OA. No effect OB. No effect OC. Decrease O D. Decrease Item 2 No effect Decrease Decrease No effect C
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 million for this report, and I am not sure their analysis makes sense. Before we spend the $25 million on the new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in thousands of dollars) for the project: Project year 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 - Gen, sales and admin expenses 2,000 2,000 2,000 2,000 - Depreciation 2,500 2,500 2,500 2,500 =Net operating income 7,500 7,500 7,500 7,500 - Income tax 2,625 2,625 2,625 2,625 =Net Income…
You have been commissioned to estimate the demand curve for admission to Lake Saint- Michel, a recreational fishing site in France. To do this, you spend a day surveying visitor to the site. You divide the area around the site into 3 zones. You ask each person you interview where they come from. Based on that information, and figures on annual attendance at the park, you are able to calculate the annual number of visitors from each zone. Your data are shown below. For each zone, the total travel cost 1 euro per person for each kilometer traveled to and from the site. One-Way Distance from Park Origin Total Number of Population Users (in kilometer) A 6.25 125,000 18,750 B 12.5 937,500 93,750 18.75 1,250,000 62,500 b. Suppose a fee were charged to enter the site. What is the per capita demand function for each origin? Please express the relationship in an equation. Calculate the number of visitors and consumer surplus if no fee were C. charged to enter the park.
The production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine which one has the best average rate of return. Machine A Machine B Machine C $83,087.40 $73,001.40 322,364.00 276,958.00 486,676.00 Estimated average income $45,130.96 Average investment Oa. Machine B Ob. Machine C Oc. Machine A Od. Machines B and C have the same preferred average rate of return.
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 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): 1 2 Sales revenue 29.000 29.000 9 29.000 10 29.000 -Cost of goods sold 17.400 17.400 17.400 17.400 = Gross profit 11.600 11.600 11.600 11.600 - General, sales, and administrative expenses 2.240 2.240 2.240 2.240 - Depreciation 2.800 2.800 2.800 2.800 = Net operating income 6.5600 6.5600 6.5600 6.5600 - Income tax = Net income 2.296 4.264 2.296 2.296 2.296 4.264 4.264 4.264 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the…
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 $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): 2 9 10 Sales revenue 1 27.000 27.000 16.200 16.200 10.800 10.800 2.240 - Cost of goods sold 27.000 16.200 10.800 27.000 16.200 = Gross profit 10.800 - General, sales, and administrative expenses 2.240 2.240 2.240 - Depreciation 2.800 2.800 2.800 2.800 5.7600 = Net operating income 5.7600 5.7600 5.7600 - Income tax 2.016 2.016 2.016 2.016 = Net income 3.744 3.744 3.744 3.744 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the…
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 $1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $20 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 26.000 15.600 2 26.000 15.600 10.400 10.400 1.600 1.600 2.000 2.000 6.800 2.38 4.420 6.800 2.38 4.420 ... 9 26.000 15.600 10.400 1.600 2.000 6.800 2.38 4.420 10 26.000 15.600 10.400 1.600 2.000 6.800 2.38 4.420 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…
Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $7.3 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $7.79 million after taxes. In five years, the land will be worth $8.09 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.76 million to build. The following market data on DEI’s securities are current: Debt: 93,800 7.2 percent coupon bonds outstanding, 26 years to maturity, selling for 93.1 percent of par; the bonds have a $1,000 par value each…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS