PROJECT CASH FLOWEisenhower Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project.

PROJECT CASH FLOW Eisenhower 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                                          $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 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 your answer to part a?

c. Ignore part b. If the tax rate dropped to 30%, how would that change your answer to part a?