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
