Question: PROJECT CASH FLOWEisenhower Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The financial staff has collected the

PROJECT CASH FLOWEisenhower 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 $10 million

Operating costs (excluding depreciation)7 million

Depreciation 2 million

Interest expense 2 million

The company has a 40% tax rate, and its WACC is 10%.

a.What is the project's cash flow for the first year t1 ?

b.If this project would cannibalize other projects by $1 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?

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