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Question - Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information on the project:
Sales revenues $25 million
Operating costs 22.5 million
Interest expense 2 million
The company has a 25% tax rate, and its WACC is 12%.
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)?
2. 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 a? Round your answer to the nearest dollar.
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