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 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?
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.
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