Project cash flow

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                 $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 13%.

Write out your answers completely. For example, 13 million should be entered as 13,000,000.

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 $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 cent.

The firm's OCF would now be $ _____

C. Ignore Part b. 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 or Decrease) by $ _____