You are a manager at Percolated Fiber, which is considering expanding its operations. Your boss said to you "We owe these consultants $1.8 million for this report, and I am not sure their analysis makes sense. Before we spend $39 million on new equipment needed for this project, look it over and give me your opinion." Here ar the report's estimates (in millions of dollars; note that the question is continued below, so you need to scroll down to see it all): 1 3 Sales revenue - Cost of goods sold Gross profit -Selling, gen. & admin. exp. -Depreciation Net operating income - Income tax (30%) 64.0 64.0 40.0 24.0 64.0 40.0 40.0 24.0 24.0 3.8 3.8 3.8 13.0 13.0 7.2 13.0 7.2 7.2 2.2 2.2 2.2 Net Income 5.0 5.0 5.0 Everything that the consultants have calculated is correct, as far as it goes. The project will require $18 million in working capital upfront (year 0), which will be fully
You are a manager at Percolated Fiber, which is considering expanding its operations. Your boss said to you "We owe these consultants $1.8 million for this report, and I am not sure their analysis makes sense. Before we spend $39 million on new equipment needed for this project, look it over and give me your opinion." Here ar the report's estimates (in millions of dollars; note that the question is continued below, so you need to scroll down to see it all): 1 3 Sales revenue - Cost of goods sold Gross profit -Selling, gen. & admin. exp. -Depreciation Net operating income - Income tax (30%) 64.0 64.0 40.0 24.0 64.0 40.0 40.0 24.0 24.0 3.8 3.8 3.8 13.0 13.0 7.2 13.0 7.2 7.2 2.2 2.2 2.2 Net Income 5.0 5.0 5.0 Everything that the consultants have calculated is correct, as far as it goes. The project will require $18 million in working capital upfront (year 0), which will be fully
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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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
![The project will also utilize other equipment that the consultants did not value separately because the equipment is already owned and not being used in other projects.
The equipment could instead be donated to a charity, and the tax benefit of that donation would be $2.3 million (in other words, this is the total amount that your taxes
would decrease by in period 0, if you donated the equipment rather than using it for the project). In addition, donating the equipment would generate goodwill and
increased reputation which you feel would be worth an additional $1.7 million (in dollars today).
What are the correct free cash flows (FCFS) for evaluating this project? Start from the correct Net Income which has already been given, and make any additional
adjustments needed for any periods, in order to get the entire set of FCFS. Do not calculate the NPV – just give the FCF stream. Show your calculations but do not
explain them except to label the numbers you give.
[Note: Do not write an essay or explain concepts. Just show me your numbers, properly labeled (by labels, I mean row and column headings such as "Depreciation"
or "Year 3"), and make the calculations clear (are you adding or subtracting?). I'd prefer that you keep the column/row formatting othe earlier calculations. Do NOT
repeat the numbers before Net Income - just show the calculations after that, and the final CFs for each period. And please do not change the units - I'd like the
answers in millions of dollars, not in dollars.]
G](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0d419537-f78c-48db-8350-6caeb26536e2%2Fb5ea9893-feb9-4af3-88f1-da2cbdab6e13%2F31mu4y_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The project will also utilize other equipment that the consultants did not value separately because the equipment is already owned and not being used in other projects.
The equipment could instead be donated to a charity, and the tax benefit of that donation would be $2.3 million (in other words, this is the total amount that your taxes
would decrease by in period 0, if you donated the equipment rather than using it for the project). In addition, donating the equipment would generate goodwill and
increased reputation which you feel would be worth an additional $1.7 million (in dollars today).
What are the correct free cash flows (FCFS) for evaluating this project? Start from the correct Net Income which has already been given, and make any additional
adjustments needed for any periods, in order to get the entire set of FCFS. Do not calculate the NPV – just give the FCF stream. Show your calculations but do not
explain them except to label the numbers you give.
[Note: Do not write an essay or explain concepts. Just show me your numbers, properly labeled (by labels, I mean row and column headings such as "Depreciation"
or "Year 3"), and make the calculations clear (are you adding or subtracting?). I'd prefer that you keep the column/row formatting othe earlier calculations. Do NOT
repeat the numbers before Net Income - just show the calculations after that, and the final CFs for each period. And please do not change the units - I'd like the
answers in millions of dollars, not in dollars.]
G
Transcribed Image Text:You are a manager at Percolated Fiber, which is considering expanding its operations. Your boss said to you "We owe these consultants $1.8 million for this report,
and I am not sure their analysis makes sense. Before we spend $39 million on new equipment needed for this project, look it over and give me your opinion." Here are
the report's estimates (in millions of dollars; note that the question is continued below, so you need to scroll down to see it all):
1
3
Sales revenue
64.0
64.0
40.0
, 24.0
64.0
- Cost of goods sold
Gross profit
-Selling, gen. & admin. exp.
-Depreciation
Net operating income
- Income tax (30%)
Net Income
40.0
40.0
24.0
24.0
3.8
3.8
3.8
13.0
13.0
13.0
7.2
7.2
7.2
2.2
2.2
2.2
5.0
5.0
5.0
Everything that the consultants have calculated is correct, as far as it goes. The project will require $18 million in working capital upfront (year 0), which will be fully
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