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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 $15 million Operating costs (excluding depreciation) 10.5 million Depreciation 3 million Interest expense 3 million The company has a 40% tax rate, and its WACC is 11%. a. What is the project's cash flow for the first year (t = 1)? b. If this project would cannibalize other projects by $1.5 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...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

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Chapter
Section
Chapter 12, Problem 2P
Textbook Problem

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 $15 million
Operating costs (excluding depreciation) 10.5 million
Depreciation 3 million
Interest expense 3 million

The company has a 40% tax rate, and its WACC is 11%.

  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 $1.5 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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Chapter 12 Solutions

Fundamentals of Financial Management (MindTap Course List)
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