Eisenhower Communications is trying to estimate the first-year net operating cas
ID: 2685340 • Letter: E
Question
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 $20 million Operating costs (excluding depreciation) 14 million Depreciation 4 million Interest expense 4 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. What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest cent. $ If this project would cannibalize other projects by $2 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 $ 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 by $Explanation / Answer
Sales revenue $20 million
Operating costs (excluding depreciation) $14 million
Depreciation $ 4 million
Interest expense $ 4 million
Operating icome before taxes 42 million
Taxes (40%) 16.8 million
Operating income After tax 25.2 million
Add depreciation $ 4 million
Operating cash flow 29.2 million
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