Question Details

Eisenhower Communications is trying to estimate the first-yearnet operating cash flow (at Year 1) for a proposed project. Thefinancial staff has collected the following information on theproject:

Sales revenues $5 million

Operating costs (excluding depreciation) 3.5 million

Depreciation 1 million

Interest expense 1 million

The company has a 40% tax rate, and its WACC is 10%.

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

b. If this project would cannibalize other projects by $0.5million of cash flow before taxes per year, how would this changeyour answer to part a? Round your answer to the nearest cent.
The firm's OCF would now be?   $

c. Ignore Part b. If the tax rate dropped to 35%, how would thatchange your answer to part a? Round your answer to the nearestcent.
The firm's operating cash flow would _______(Increase or decrease?)by $______ ?