Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project.
Question:
Colsen 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:
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 11%.
a. What is the project’s cash flow for the first year (t = 1)?
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?
c. Ignore part b. If the tax rate dropped to 30%, how would that change your answer to part a?
Step by Step Answer:
Fundamentals of Financial Management
ISBN: 978-1337395250
15th edition
Authors: Eugene F. Brigham, Joel F. Houston