Colsen Communications is trying to estimate the first-year cashflow (at Year 1) for a proposed project. The financial staff has collected the following informationon the project:Sales revenues $15 millionOperating costs (excluding depreciation) 10.5 millionDepreciation 3 millionInterest expense 3 millionThe company has a 40% tax rate, and its WACC is 11%.a. What is the project’s cash flow for the first year (t = 1)?b. If this project would cannibalize other projects by $1.5 million of cash flow before taxesper year, how would this change your answer to part a?c. Ignore part b. If the tax rate dropped to 30%, how would that change your answer topart a?
Colsen Communications is trying to estimate the first-year cash
flow (at Year 1) for a proposed project. The financial staff has collected the following information
on the project:
Sales revenues $15 million
Operating costs (excluding
Depreciation 3 million
Interest expense 3 million
The company has a 40% tax rate, and its WACC is 11%.
a. What is the project’s cash flow for the first year (t = 1)?
b. If this project would cannibalize other projects by $1.5 million of cash flow before taxes
per year, how would this change your answer to part a?
c. Ignore part b. If the tax rate dropped to 30%, how would that change your answer to
part a?
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