PROJECT CASH FLOW Eisenhower Communications is trying to estimate the first-year net cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project: Sales revenues $10 million Operating costs (excluding depreciation) 7 million Depreciation 2 million Interest expense 2 million 12-3 12-4 12-5 12-6 12-7 The company has a 40% tax rate, and its WACC is 10%. a. What is the project’s net cash flow for the first year (t = 1)? b. If this project would cannibalize other projects by $1 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?
PROJECT CASH FLOW Eisenhower Communications is trying to estimate the first-year net cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project:
Sales revenues $10 million
Operating costs (excluding depreciation) 7 million Depreciation 2 million
Interest expense 2 million
12-3
12-4
12-5
12-6
12-7
The company has a 40% tax rate, and its WACC is 10%.
a. What is the project’s net cash flow for the first year (t = 1)?
b. If this project would cannibalize other projects by $1 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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