Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN: 9781337395250
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 12, Problem 2P
a.
Summary Introduction
To compute: The project’s cash flow for the first year.
Introduction:
Project Cash Flows:
Cash flow statement is prepared to see that the position of cash. The cash flow for the specific project is known as the project cash flow.
b.
Summary Introduction
To compute: The cash flow of project when the cash flow before tax is $1.5 million.
c.
Summary Introduction
To compute: The project’s cash flow for the first year if the tax rate is 30%.
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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?
PROJECT CASH FLOW 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 infor-
mation on the project:
12-2
Sales revenues
$15 million
Operating costs (excluding depreciation)
10.5 million
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?
A company 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
$16.5 million
Optg costs (Excluding Depreciation)
$12.8 million
$2.8 million
Depreciation
Interest Expense
$2.8 million
The company has a 40% tax rate, and its WACC is 11%. What is the project's cash flow in year 1? Express
Chapter 12 Solutions
Fundamentals of Financial Management (MindTap Course List)
Ch. 12 - Operating cash flows rather than accounting income...Ch. 12 - Explain why sunk costs should not be included in a...Ch. 12 - Explain why net operating working capital is...Ch. 12 - Why are interest charges not deducted when a...Ch. 12 - Prob. 5QCh. 12 - What are some differences in the analysis for a...Ch. 12 - Distinguish among beta (or market) risk,...Ch. 12 - Prob. 8QCh. 12 - Prob. 9QCh. 12 - If you were the CFO of a company that had to...
Ch. 12 - What is a "replacement chain"? When and how should...Ch. 12 - What is an "equivalent annual annuity (EAA)"? When...Ch. 12 - Suppose a firm is considering two mutually...Ch. 12 - REQUIRED INVESTMENT Tannen Industries is...Ch. 12 - Prob. 2PCh. 12 - AFTER-TAX SALVAGE VALUE Karsted Air Services is...Ch. 12 - REPLACEMENT ANALYSIS The Oviedo Company is...Ch. 12 - EQUIVALENT ANNUAL ANNUITY Faleye Consulting is...Ch. 12 - DEPRECIATION METHODS Charlene is evaluating a...Ch. 12 - SCENARIO ANALYSIS Huang Industries is considering...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate the...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate a proposal...Ch. 12 - REPLACEMENT ANALYSIS The Dauten Toy Corporation...Ch. 12 - REPLACEMENT ANALYSIS St. Johns River Shipyards is...Ch. 12 - PROJECT RISK ANALYSIS The Butler-Perkins Company...Ch. 12 - UNEQUAL LIVES Crockett Graphic Designs Inc. is...Ch. 12 - UNEQUAL LIVES Overton Clothes Inc. is considering...Ch. 12 - REPLACEMENT CHAIN Rini Airlines is considering two...Ch. 12 - REPLACEMENT CHAIN The Lesseig Company has an...Ch. 12 - EQUIVALENT ANNUAL ANNUITY A firm has two mutually...Ch. 12 - SCENARIO ANALYSIS Your firm, Agrico Products, is...Ch. 12 - NEW PROJECT ANALYSIS Holmes Manufacturing is...Ch. 12 - REPLACEMENT ANALYSIS The Darlington Equipment...Ch. 12 - REPLACEMENT ANALYSIS The Bigbee Bottling Company...
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