Question
Eisenhower Communications is trying to estimate the first-year net cash flow (at Year 1) for a proposed project. The financial staff has collected the following
Eisenhower Communications is trying to estimate the first-year net cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project: Sales revenues $10 million Operating costs (excluding depreciation) $7 million Depreciation $2 million Interest expense $2 million The company has a 40% tax rate, and its WACC is 10%.
2.1 What is the projects net cash flow for the first year (t = 1)?
2.2 If this project would cannibalize other projects by $1 million of cash flow before taxes per year, how would this change your answer to Q2.1?
2.3 Ignore Q2.2. If the tax rate dropped to 30%, how would that change your answer to Q2.1?
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