Eisenhower Communications is trying to estimate the first-year net operating cas

Question

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 11%........ >>>>>>a.)What is the project's operating cash flow for the first year (t = 1)? (Round your answer to the nearest cent. Write out your answers completely. For example, 13 million should be entered as 13,000,000) $ _______

Explanation / Answer

Sales 10 Operating Cost -7 Depriciation -2 Interest -2 Loss before tax -1 Tax @40% - Gain 0.8 Loss After tax -1.2 Add back: Depri 4 Net cashFlow 2.8 Since project has cashflows lower then 10M, therefore other 10M cashflow will not be realized. If Tax @ 30% Loss before tax -2 Tax @30% 0.6 Loss After tax -1.4 Add back: Depri 4 Net cashFlow 2.6

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