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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Transcribed Image Text: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
10
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
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.)
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