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eBook Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a...

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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 $10 million
Operating costs 8 million
Interest expense 2 million

The company has a 25% tax rate, and its WACC is 12%.

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

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

  2. 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 $   .

Homework Answers

Answer #1

a) Operating cashflow : $ 2000000

b) Operating cashflow: $ 875000

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