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Project cash flow

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Company X is trying to estimate the first-year net cash flow (at year 1) for a proposed project. The financial staff has collected the following information on the project:

Sales revenue: $10 million
Operating costs (excluding depreciation): 7 million
Depreciation: 2 million
Interest expense: 2 million

The company has a 40% tax rate, and its WACC is 10%.

a. What is the project's net cash flow for the first year? (t=1)
b. If this project would cannibalize other projects by 1 million of cash flow before taxes per year, how would this change part A?
c. Ignore part B. if the tax rate dropped to 30%, how would that change part A?

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Response provides guidance regarding calculating project cash flow.

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Company X is trying to estimate the first-year net cash flow (at year 1) for a proposed project. The financial staff has collected the following information on the project:

Sales revenue: $10 million
Operating costs (excluding depreciation): ...

Purchase this Solution
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