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Problem 122 Project cash flow Eisenhower 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

Problem 12-2
Project cash flow

Eisenhower 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 $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 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 cent. Answer: 1,300,000

B. 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 cent.
The firm's OCF would now be $

C. Ignore Part b. If the tax rate dropped to 30%, how would that change your answer to part a? Round your answer to the nearest cent.
The firm's operating cash flow would increase, by $

* just need solutions for B and C i got A CORRECT!!!!

 

Sep 07 2020 View more View Less

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