Question

THE YEARS 1-9 ARE NOT SUPPOSE TO BE THE SAME IN EACH YEAR'S FINAL CASH FLOW BECAUSE ITS INCORRECT. FOR INSTANCE, YEARS 1-9 ARE NOT SUPPOSE TO BE 7.227 EACH YEAR. RATHER, ITS SUPPOSE TO BE A DIFFERENT NUMBER EACH YEAR. **** THIS IS NOT MY QUESTION BUT (MINE WILL BE BELOW THIS ONE) AN EXAMPLE ON HOW ITS DONE SO IT CAN GIVE YOU SOME GUIDANCE!

EXAMPLE (NOT MY QUESTION):

i View an Example Question Help ιυ youι υιιυτ, μιυμο αυιομπαιιιοισμυιιυιι youι υσON, αιια ιιιμιαιιιο, ννο υννε ιιισοτ ιυιιομιιαιπιο ψε. Πιιυιιιυι ιιο ιτιυιι, αιιαιαιιι not sure their analysis makes sense. Before we spend the $31 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): 2 9 Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses Depreciation = Net operating income - Income tax = Net income 1 36.000 21.600 14.400 2.480 3.100 8.8200 3.087 5.733 36.000 21.600 14.400 2.480 3.100 8.8200 3.087 5.733 36.000 21.600 14.400 2.480 3.100 8.8200 3.087 5.733 10 36.000 21.600 14.400 2.480 3.100 8.8200 3.087 5.733 (FCF) ($000,000s) 0 1 2 3 4 5 6 7 8 9 10 36.000 36.000 36.000 36.000 36.000 36.000 36.000 36.000 36.000 36.000 21.600 21.600 21.600 21.600 21.600 21.600 21.600 21.600 21.600 21.600 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 14.400 Sales Revenue - Cost of Goods Sold = Gross Profit - General, Selling and Admin Exp. - CCA (analyze separately) = Net operating income 2.480 2.480 2.480 2.480 2.480 2.480 2.480 2.480 2.480 2.480 11.920 11.920 11.920 11.920 11.920 11.920 11.920 11.920 11.920 11.920 Press Continue to see more. 6 parts remaining Continue Close

THIS IS MY QUESTION (its the same question just with different numbers):

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 $1.9 million for this​ report, and I am not sure their analysis makes sense. Before we spend the $23 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):

All of the estimates in the report seem correct. You note that the consultants used​ straight-line depreciation for the new equipment that will be purchased today​ (year 0), which is what the accounting department recommended for financial reporting purposes. CRA allows a CCA rate of 30% on the equipment for tax purposes. The report concludes that because the project will increase earnings by $4.329 million per year for ten​ years, the project is worth $43.29 million. You think back to your glory days in finance class and realize there is more work to be​ done!  

First you note that the consultants have not factored in the fact that the project will require $11 million in working capital up front​ (year 0), which will be fully recovered in year 10. Next you see they have attributed $1.84 million of​ selling, general and administrative expenses to the​ project, but you know that $0.92 million of this amount is overhead that will be incurred even if the project is not accepted.​ Finally, you know that accounting earnings are not the right thing to focus​ on!

QUESTION

If the cost of capital for this project is 15%​, what is your estimate of the value of the new​ project?

Value of Project= $ ______ million (Round your answer to three decimal places.)

if you are right, ill drop a thumbs up:)