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You are a manager at Percolated? Fibre, which is consideringexpanding its operations in synthetic fibre manufacturing. Yourboss comes into your? office, drops a? consultant's report on your?desk, and? complains, "We owe these consultants $ 1.5 million forthis? report, and I am not sure their analysis makes sense. Beforewe spend the $ 15.1 million on new equipment needed for this?project, look it over and give me your? opinion." You open thereport and find the following estimates? (in millions of?dollars):

Earnings forecast	1	2	. . .	9	10
Sales revenue33.000	33.000	33.000	33.000	33.000	33.000
minus?Cost of goods sold	19.800	19.800	19.800	19.800	19.800
equals=Gross profit	13.200	13.200	13.200	13.200	13.200
minus??General, sales and administrative expenses	1.208	1.208	1.208	1.208	1.208
minus?Depreciation	1.510	1.510	1.510	1.510	1.510
equals=Net operating profit	10.482	10.482	10.482	10.482	10.482
minus?Income tax	3.145	3.145	3.145	3.145	3.145
equals=Net profit	7.337	7.337	7.337	7.337	7.337

All of the estimates in the report seem correct. You note thatthe consultants used? straight-line depreciation for the newequipment that will be purchased today? (year 0), which is what theaccounting department recommended. They also calculated thedepreciation assuming no salvage value for the? equipment, which isthe? company's assumption in this case. The report concludes thatbecause the project will increase earnings by $ 7.337 million peryear for ten? years, the project is worth $ 73.37 million. Youthink back to your glory days in finance class and realise there ismore work to be? done! ?First, you note that the consultants havenot factored in the fact that the project will require $ 12.7million in net working capital up front? (year 0), which will befully recovered in year 10.? Next, you see they have attributed $1.208 million of? selling, general and administrative expenses tothe? project, but you know that $ 0.604 million of this amount isoverhead that will be incurred even if the project is notaccepted.? Finally, you know that accounting earnings are not theright thing to focus? on!

a. Given the available? information, what are the free cashflows in years 0 to 10 that should be used to evaluate theproposed? project? (year 0,year1-9, year 10) ??(Round to threedecimal? places.)

b. If the cost of capital for this project is 13 %?, what isyour estimate of the value of the new? project? ??(Round to threedecimal? places.) should you accept it or should not?