Project cash flow Eisenhower Communications is trying to estimate the first-year

Question

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 $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 11%. A.) What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest cent. $ ________ B.) 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 cent. 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? The firm's operating cash flow would increase by $ __________

Explanation / Answer

A. operating cash flow= [(25-17.5-5)x.6]+5= $6.5million B) 2.5mx.6= 1.5, OCF would now be= 6.5-1.5= $5 million C.[(25-17.5-5)x.65]+5= $6.625million

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