Check My W O Click here to read the eBook: Analysis of an Expansion Project PROJ

Question

Check My W O Click here to read the eBook: Analysis of an Expansion Project PROJECT CASH FLOW 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 $10 million 7 million 2 million 2 million Operating costs (excluding depreciation Depreciation Interest expense The company has a 40% tax rate, and its WACC is 10%. Write out your answers completely. For example, 13 million should be entered as 13,000,000. a. What is the project's cash flow for the first year (t1)? Round your answer to the nearest dollar. b. If this project would cannibalize other projects by $1 illion of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest dollar The firm's project's cash flaw would nowbe 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 dollar. The firm's project's cash flow would -Select- by

Explanation / Answer

a)

b)

c)

The firm's cash flow would reduce by $100,000.

Sales 10,000,000 Less: Operating costs 7,000,000 Less: Depreciation 2,000,000 EBIT 1,000,000 Less: Interest expense 2,000,000 EBT (-)1,000,000 Less: Tax@40% (-)400,000 Net income (-)600,000 Add: Depreciation 2,000,000 Cash Flow 1,400,000

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