olsen Communications is trying to estimate the first-year cash flow (at Year 1)

Question

olsen 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:

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.

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

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 project's cash flow would now be $ .

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 dollar.
The firm's project's cash flow would -Select-increasedecreaseItem 3 by $ .

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

Explanation / Answer

a)

b)

c)

The firm's cash flow would decrease by $250,000.

Sales 25,000,000 Less: Operating costs 17,500,000 Less: Depreciation 5,000,000 EBIT 2,500,000 Less: Interest expense 5,000,000 EBT (-)2,500,000 Less: Tax@40% (-)1,000,000 Net income (-)1,500,000 Add: Depreciation 5,000,000 Cash Flow 3,500,000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.