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 $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 14%. 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? Bound your answer to the nearest dollar.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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
$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 14%.
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 $
c. 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 increase :
by $
Transcribed Image Text: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 $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 14%. 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 $ c. 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 increase : by $
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