Question
1a. 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
1a. 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 | $25 million |
Operating costs (excluding depreciation) | 17.5 million |
Depreciation | 5 million |
Interest expense | 5 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.
- What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest dollar. $
- If this project would cannibalize other projects by $2.5 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 $
- 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 operating cash flow would -Select-increasedecreaseItem 3 by $
1d. Karsted Air Services is now in the final year of a project. The equipment originally cost $28 million, of which 75% has been depreciated. Karsted can sell the used equipment today for $7 million, and its tax rate is 35%. What is the equipment's after-tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar.
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