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    Operating Cash Flow (OCF) for Company XYZ

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    OCF at year 1 (t=1) for a proposed project for company XYZ has the following information:

    Sales = $10,000,000
    Operating Costs (excludes depreciation) = $7,000,000
    Depreciation = $2,000,000
    Interest Expense = $2,000,000
    XYZ tax rate = 40%
    XYZ WACC (Weighted Avg. Cost Capital) = 10%

    1) What is the project's operating cash flow for the first year (t=1)?
    2) If this project would cannibalize other projects by $1,000,000 of cash low before taxes per year, how would this change the answer to part 1?
    3) Ignore part 2. If the tax rate dropped to 30%, how would that change the answer to part 1?

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    Solution Summary

    The solution calculates the project's operating cash flow.