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Johnson Communications is trying to estimate the Year 1 operating cash flow for a proposed project....

Johnson Communications is trying to estimate the Year 1 operating cash flow for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information:

Sales revenues

$8.8 million
Operating costs

4.8 million
Interest expense

1.1 million


Johnson has also determined that this project would cannibalize one of its other projects by $1.4 million of cash flow (before taxes) per year. The firm has a 30 percent tax rate, and its WACC is 10 percent. Calculate the project’s operating cash flow for Year 1.

a.

$1,820,000
b.

$2,030,000
c.

$1,050,000
d.

$–40,000
e.

$2,800,000

Solutions

Expert Solution

jeff jeffy answered 7 months ago
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