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. $ 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 or decrease) by $