Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 8, Problem 10P

a.

Summary Introduction

To determine: The free cash flows in years 0 through 10.

b.

Summary Introduction

To determine: The net present value (NPV).

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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 $15 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 19 10 Sales revenue 25.000 25.000 25.000 25.000 -Cost of goods sold 15.000 15.000 15.000 15.000 = Gross profit 10.000 10.000 10.000 10.000 - General, sales, and administrative expenses 1.200 1.200 1.200 1.200 - Depreciation 1.500 1.500 1.500 1.500 = Net operating income 7.3000 7.3000 7.3000 7.3000 - Income tax 2.555 2.555 2.555 2.555 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…
You are a manager at Northern​ 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 $1.5 million for this​ report, and I am not sure their analysis makes sense. Before we spend the $29 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):   ​(Click on the Icon located on the​ top-right corner of the data table below in order to copy its contents into a​ spreadsheet.)     Project Year                                                        Earnings Forecast​ ($000,000s) 1 2 . . . 9 10 Sales revenue 25.000 25.000   25.000 25.000 −Cost of goods sold 15.000 15.000   15.000 15.000 =Gross profit 10.000 10.000   10.000 10.000 −​Selling, ​general, and…
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…
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Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License