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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 $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 10%.
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 = 1)? Round your answer to the nearest dollar. $___________
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 dollar. The firm's project's cash flow would now be $__________.
What changes might we expect to see on the firm's financial statements in the next year? What changes would result from growing at a rate below the firm's sustainable rate?
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