Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

  1. What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest dollar. $
  2. 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 $
  3. 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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Distressed Debt Analysis Strategies For Speculative Investors

Authors: Stephen Moyer

1st Edition

1932159185, 978-1932159189

More Books

Students also viewed these Finance questions