Colsen Communications is trying to estimate the first-year cash flow (at year 1) for a proposed project. 

The financial staff has collected the following information on the project. 

Sales revenues                                                               $15 million

Operating costs (excluding depreciation)                  $10.5 million

Depreciation                                                                     $3 million

Interest expense                                                             $3 million

The company has a 40% tax rate, and its WACC is 11%.

a. What is the projects cash flow for the first year (t = 1)?

b. 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 1?

c. Ignore part b, if the tax rate dropped to 30%, how would that change your answer to part a?