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 projects 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 1?
c. Ignore part b, if the tax rate dropped to 30%, how would that change your answer to part a?