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Operating Cash Flow - Eisenhower Communications

Eisenhower Communications is trying to estimate the first-year operating cash flow (at T=1) for a proposed project. The financial staff has collected the following information:
Sales revenues $10 million
Operating costs (excluding depreciation) 7 million
Depreciation 2 million
Interest expense 2 million

The company faces a 40 percent tax rate and its WACC is 10 percent.

a)What is the projects operating cash flow for the first year (t=1)?
b)If this project would cannibalize other projects by $1 million of cash flows before taxes per year, how would this change the answer of part a)?
c) Ignore part b). If the tax rate dropped to 30 percent, how would that change your answer to part a)?

No excel formulas please.

Solution Preview

The company has a 40% tax rate, and its WACC is 10%.
a. What is the projects operating cash flow for the first year (t = 1)?

Operating Cash Flows: t = 1
Sales revenues $10,000,000
Operating costs 7,000,000
Depreciation ...

Solution Summary

The solution explains how to calculate the operating cash flow.

$2.19