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 $1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $27 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 35.000 35.000 21.000 21.000 14.000 14.000 2.160 2.160 2.700 2.700 9.1400 9.1400 3.199 3.199 5.941 5.941 9 35.000 21.000 14.000 2.160 2.700 10 35.000 21.000 14.000 2.160 2.700 9.1400 9.1400 3.199 3.199 5.941 5.941 b. If the cost of capital for this project is 14%, what is your estimate of the value of the new project? Value of project = $ 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 $1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $27 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 35.000 35.000 21.000 21.000 14.000 14.000 2.160 2.160 2.700 2.700 9.1400 9.1400 3.199 3.199 5.941 5.941 9 35.000 21.000 14.000 2.160 2.700 10 35.000 21.000 14.000 2.160 2.700 9.1400 9.1400 3.199 3.199 5.941 5.941 b. If the cost of capital for this project is 14%, what is your estimate of the value of the new project? Value of project = $ 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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