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PROJECT CASH FLOW Eisenhower 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 (t = 1)? 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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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

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Chapter
Section
Chapter 12, Problem 2P
Textbook Problem

PROJECT CASH FLOW Eisenhower 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%.

  1. a. What is the project's cash flow for the first year (t = 1)?
  2. 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?
  3. c. Ignore Part b. If the tax rate dropped to 30%, how would that change your answer to Part a?

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