You are trying to estimate the first year net operating cash flow (at year 1) for a proposed project. The financial staff has collected the following information on the project:
Sales revenues $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 11%
How would you calculate what the project’s operating cash flow for the first year? And if the project cannibalized other projects by $1 million of cash flow before taxes per year, how would you go about calculating how that would change the first year’s operating cash flow? And what if the tax rate was dropped to 30% how would that effect the first year estimated operating cash flow?
How would you calculate what the project’s operating cash flow for the first year?
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