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You are a manager at Northeen 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 owv these consultants $1.4 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 miltions of dollars): All of the estimates in the report seem correct. You note that the consultants used straight-line deprociation for the new equipment that will be purchased today (year 0), which is what the accounting dopartment recommended for financial roporting purposes, CRA allows a CCA rate of 45% on the equipment for tax purposes. The report concludes that because the project will increase earnings by $3.861 milion per year for ton years. the project is worth $38.61 million. You think back to your glory days in finance class and realize there is more work to be donel First you note that the consultants have not factored in the fact that the project will require $8 million in working captal up front (year 0 ), which will be fully recovered in year 10. Noxt you see they have attributed $2.16 million of soling. general and administrative expenses to the project, but you know that \$1.08 milion of this amount is overhead that will be incurred even if the project is not accepted. Finally, you know that accounting earnings are not the right thing to focus on! b. If the cost of capital for this project is 12%, what is your estimate of the value of the new project? b. If the cost of capital for this project is 12%. what is your estimate of the value of the fiew project? Value of project =$ million (Round to threo decimal places.)

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