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 $1.2 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 1 2 26.000 26.000 15.600 15.600 10.400 10.400 2.080 2.080 2.600 2.600 5.7200 5.7200 9 26.000 15.600 10.400 2.080 2.600 5.7200 10 26.000 15.600 10.400 2.080 2.600 5.7200 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.)

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 $1.2 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 1 2 26.000 26.000 15.600 15.600 10.400 10.400 2.080 2.080 2.600 2.600 5.7200 5.7200 9 26.000 15.600 10.400 2.080 2.600 5.7200 10 26.000 15.600 10.400 2.080 2.600 5.7200 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.)

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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