Question

You are a manager at Percolated Fiber whith is considering expanding its operations in syntherc fber manufacturing. Your bess comes into your office, drops a consultans report on your desk, and complans, VWe owe these consutants $1. million for this report, and I amnct sure their analysis makes Befcre we Faminga Farecast (S millionj Salas ra - Co: of goods sold 34 000 20.400 20.400 20 400 20.400 -Saing, general ad admnstratr -Depreciation Nat aparating income Incomc tax 2400 2.400 3.000 3.000 2 400 3000 8 200 2400 3.000 expensas 287 2.07 8. G en t-Svalable informal hst are the rre cash no s inyo 19。th ough 10t at 8hould be used to evaluate ine proposed prof.t? The free cash flow for year D is milicn Round to three decimal places and enter a decrease as a negative number.) The fres cash fiow for years 1 to 9 iz milion (Round so throc decimal places and enter a decrase as a regative number) The too cash flow for yoar 10 s S「milon. Round to three decimal places and ortera decrease asa nagatve number) b. " t e east of capital for this pro-ct 1 2%, what your estimat of the valua at th new pra er? The value of the project is oRound to three decimal places.)

Answer 1

Year	0	1	2	3	4	5	6	7	8	9	10
net operating income		8.2	8.2	8.2	8.2	8.2	8.2	8.2	8.2	8.2	8.2
less taxes		2.87	2.87	2.87	2.87	2.87	2.87	2.87	2.87	2.87	2.87
net income		5.33	5.33	5.33	5.33	5.33	5.33	5.33	5.33	5.33	5.33
add depreciation		3	3	3	3	3	3	3	3	3	3
less capital expenditure	-30	0	0	0	0	0	0	0	0	0	0
add or less change in working capital	0	0	0	0	0	0	0	0	0	0	0
free cash flow = net operating profit- taxes + depreciation-capital expenditure+ changes in working capital	-30	8.33	8.33	8.33	8.33	8.33	8.33	8.33	8.33	8.33	8.33
present value of free cash flow = free cash flow/(1+r)^n r= 12%	-30/(1.12)^0	8.33/1.12^1	8.33/1.12^2	8.33/1.12^3	8.33/1.12^4	8.33/1.12^5	8.33/1.12^6	8.33/1.12^7	8.33/1.12^8	8.33/1.12^9	8.33/1.12^10
present value of free cash flow = free cash flow/(1+r)^n r= 12%	-30	7.4375	5.929129464	4.726666	3.768068964	3.003881508	2.394676	1.909021	1.52186	1.213217	0.967169
Net present value = sum of present value of free cash flow	2.87
Free cash flow Year 0		-30
free cash flow Year 1- 9		8.33
Free cash flow Year 10		8.33
Value of project		2.87