# Colsen Communications is tryin

Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information on the project:

 Sales revenues \$25 million Operating costs 22.5 million Interest expense 3 million

The company has a 25% tax rate, and its WACC is 10%.

Write out your answers completely. For example, 13 million should be entered as 13,000,000.

a. What is the project’s operating cash flow for the first year (t = 1)? Round your answer to the nearest dollar.
\$  ____

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? Round your answer to the nearest dollar.
The firm’s OCF would now be \$ ____

# Colsen Communications is tryin

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) 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?

# Colsen Communications is tryin

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 information on the project:

 Sales revenues \$5 million Operating costs (excluding depreciation) 3.5 million Depreciation 1 million Interest expense 1 million

The company has a 40% tax rate, and its WACC is 11%.

Write out your answers completely. For example, 13 million should be entered as 13,000,000.

1. What is the project’s cash flow for the first year (t = 1)? Round your answer to the nearest dollar.
\$________?

1. If this project would cannibalize other projects by \$0.5 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest dollar.
The firm’s project’s cash flow would now be \$ _____?

1. Ignore part b. If the tax rate dropped to 35%, how would that change your answer to part a? Round your answer to the nearest dollar.
The firm’s project’s cash flow would -Select-increase/decrease Item 3 by \$ _______?

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