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

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 13%.

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 $0.5 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest cent. The firm's OCF would now be $

c. If the tax rate dropped to 35%, how would that change your answer to part a? Round your answer to the nearest cent. The firm's operating cash flow would increase by $

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9974483

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