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 $20 million Operating costs (excluding depreciation) 14 million Depreciation 4 million Interest expense 4 million The company has a 40% tax rate, and its WACC is 13%. 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

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                  

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