EXCEL FORMAT

Cairn Communications is trying to estimate the first-year cash flow for a proposed project. The financial staff has collected the following information on the project:

Projected sales	$15.0 million
Operating costs (excluding depreciation)	$10.5 million
Depreciation	$3.0 million
Interest expense	$2.0 million

The company faces a 30% tax rate, and its cost of capital is 11%.

a. What is the projects operating cash flow for the first year?

b. If the proposed project would cannibalize other projects by $1.5 million of cash flow before taxes per year, how would this change your answer on the projects operating cash flow for the first year?