Question

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 $20 million Operating costs (excluding depreciation) 14 million Depreciation 4 million Interest expense 4 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. What is the project's cash flow for the first year (t

Answer 1

Answer:

Colsen Communications

Project's Cash Flow for the first year:

Sales revenues                        $20,000,000

Operating costs

 (excluding depreciation)          14,000,000

Interest expense                         4,000,000

Net cash flow                           $2,000,000

Explanation:

a) Data and Calculations:

Sales revenues $20 million

Operating costs (excluding depreciation) 14 million

Depreciation 4 million

Interest expense 4 million

Income Tax 40%

WACC is 13%

Income Statement for the first year:

Sales revenues                        $20,000,000

Operating costs

 (excluding depreciation)          14,000,000

Depreciation                                4,000,000

Operating income                     $2,000,000

Interest expense                         4,000,000

Income before tax                   ($2,000,000)

Income Tax 40%

Project's Cash Flow for the first year:

Sales revenues                        $20,000,000

Operating costs

 (excluding depreciation)          14,000,000

Interest expense                         4,000,000

Net cash flow                            $2,000,000