Problem 12-2 Project cash flow Eisenhower Communications is trying to estimate t
ID: 2652648 • Letter: P
Question
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:
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 $
Sales revenues $20 million Operating costs (excluding depreciation) 14 million Depreciation 4 million Interest expense 4 millionExplanation / Answer
Answer..
1) calculation of opreating cash flow sales revenue $ 20,000,000.00 less: opreating cost $ (14,000,000.00) less:depreciation $ (4,000,000.00) profit before tax $ 2,000,000.00 less: tax $ 800,000.00 profit after tax $ 1,200,000.00 Add; depreciation $ 4,000,000.00 cash flow $ 5,200,000.00 wacc@12% $ 0.89 discounted inflow $ 4,642,560.00