In: Finance
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 |