Question

Colsen Communications is trying to estimate the first-year net operating 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 13%.

Write out your answers completely. For example, 13 million should be entered as 13,000,000.

1. What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest dollar.

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? Round your answer to the nearest dollar.
The firm's OCF would now be $

Answer 1

Question a:

Calculation of Operating Cahs Flow for the Year 1

Operating Cash Flow for Year 1 is $2,100,000

Question b:

Calculation of Operating Cahs Flow for the Year 1

Operating Cash flow for Year 1 now is $1,200,000

Yes, this will change my answer in Question a