PROJECT CASH FLOW Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for...

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PROJECT CASH FLOW
Colsen Communications is trying to estimate the first-year cashflow (at Year 1) for a proposed project. The financial staff hascollected 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 10%.
Write out your answers completely. For example, 13 millionshould be entered as 13,000,000.
What is the project's cash flow for the first year (t = 1)?Round your answer to the nearest dollar.
$

If this project would cannibalize other projects by $0.5million of cash flow before taxes per year, how would this changeyour answer to part a? Round your answer to the nearestdollar.
The firm's project's cash flow would now be $ .

Ignore part b. If the tax rate dropped to 35%, how would thatchange your answer to part a? Round your answer to the nearestdollar.
The firm's project's cash flow would (increase or decrease) by $?

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4.3 Ratings (889 Votes)

a)	Sales revenues	$ 50,00,000.00
	Operating costs (excluding depreciation)	$ 35,00,000.00
	Depreciation	$ 10,00,000.00
	NOI	$ 5,00,000.00
	Tax at 40%	$ 2,00,000.00
	NOPAT	$ 3,00,000.00
	Add: Depreciation	$ 10,00,000.00
	Cash flow for the first year	$ 13,00,000.00
b)	Sales revenues	$ 50,00,000.00
	Operating costs (excluding depreciation)	$ 35,00,000.00
	Depreciation	$ 10,00,000.00
	Cannibalization of other projects	$ 5,00,000.00
	NOI	$ -
	Tax at 40%	$ -
	NOPAT	$ -
	Add: Depreciation	$ 10,00,000.00
	Annual cash flow	$ 10,00,000.00
c)	Sales revenues	$ 50,00,000.00
	Operating costs (excluding depreciation)	$ 35,00,000.00
	Depreciation	$ 10,00,000.00
	NOI	$ 5,00,000.00
	Tax at 35%	$ 1,75,000.00
	NOPAT	$ 3,25,000.00
	Add: Depreciation	$ 10,00,000.00
	Projects cash flow	$ 13,25,000.00
	The firm's project cash flow would increase
	by $25,000.

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PROJECT CASH FLOWColsen Communications is trying to estimate the first-year cashflow (at Year 1) for a proposed project. The financial staff hascollected the following information on the project:Sales revenues$5 millionOperating costs (excluding depreciation)3.5 millionDepreciation1 millionInterest expense1 millionThe company has a 40% tax rate, and its WACC is 10%.Write out your answers completely. For example, 13 millionshould be entered as 13,000,000.What is the project's cash flow for the first year (t = 1)?Round your answer to the nearest dollar.$If this project would cannibalize other projects by $0.5million of cash flow before taxes per year, how would this changeyour answer to part a? Round your answer to the nearestdollar.The firm's project's cash flow would now be $ .Ignore part b. If the tax rate dropped to 35%, how would thatchange your answer to part a? Round your answer to the nearestdollar.The firm's project's cash flow would (increase or decrease) by $?

Sales revenues	$5 million
Operating costs (excluding depreciation)	3.5 million
Depreciation	1 million
Interest expense	1 million