Question

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	$5 million
Operating costs (excluding depreciation)	3.5 million
Depreciation	1 million
Interest expense	1 million

The company has a 40% tax rate, and its WACC is 14%.

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

1. What is the project's cash flow for the first year (t = 1)? Round your answer to the nearest dollar.
   $_____________
2. 
   
3. If this project would cannibalize other projects by $0.5 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 project's cash flow would now be $_____________ .
4. 
   
5. Ignore part b. If the tax rate dropped to 35%, how would that change your answer to part a? Round your answer to the nearest dollar.
   The firm's project's cash flow would -Select-increase OR decrease by $_____________ .

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

05:24 C W ? ENG 66 01-08-2020 35 Х CM167 . CK CL CM CN СО CP CQ CR CS CT CU 147 148 COLSEN SALES REVENUE OPERATING COSTS 5000000 3500000 149 150 151 152 153 154 155 156 DEPRECIATION EBIT 1000000 500000 200000 (40% TAX) 300000 TAX OPERATING INCOME AFTER TAX DEPRECIATION CASHFLOW 1000000 1300000 157 a 158 159 160 CANNIBALISATION WILL REDUCE EBIT BY 500000 SO EBIT = 161 162 0 (500000-500000) 0 163 TAX OPERATING INCOME AFTER TAX DEPRECIATION 0 164 1000000 165 b CASHFLOW 1000000 166 167 168 169 170 NPV OCF CASH FLOW STATW FCF ARM, MSI,confidenceINDEX LOAN CURRENCY CROSS OVER GM HPR AM CUMRET TAX HEDGING MONEY MAE ... +

05:25 C w ? ENG 66 01-08-2020 35 Х CK180 . CK CL CM CN CO CP CQ CR CS CT CU 166 167 IF TAX RATE DROPPED TO 35% 168 5000000 169 3500000 170 1000000 171 172 173 174 SALES REVENUE OPERATING COSTS DEPRECIATION EBIT TAX OPERATING INCOME AFTER TAX DEPRECIATION CASHFLOW 500000 175000 35% TAX 325000 1000000 1325000 INCREASE BY 25000 (1325000 - 1300000] 175 176 177 C 178 179 180 181 182 183 184 185 186 187 188 189 NPV OCF CASH FLOW STATW FCF ARM, MSI,confidenceINDEX LOAN CURRENCY CROSS OVER GM HPR AM CUMRET TAX HEDGING MONEY MAL ... ..