Question

Colsen Communications is trying to estimate the first-year net operating cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project:

Sales revenues	$25 million
Operating costs (excluding depreciation)	17.5 million
Depreciation	5 million
Interest expense	5 million

The company has a 40% 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 $2.5 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 $   
3. 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 operating cash flow would -Select-increasedecreaseItem 3  by $   

Answer 1