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

A. Project cash flow$2,600,000

C. $2,700,000

$100,000 Increase

Explanation:

A. Calculation for the Project cash flows

Sales revenues 9,000,000

Less Operating costs 6,000,000

Depreciation2,000,000

Operating income before taxes$1,000,000

(9,000,000-6,000,000-2,000,000)

Taxes (40%)400,000

(40%*1,000,000)

Operating income after taxes600,000

(1,000,000-400,000)

Add back depreciation2,000,000

Project cash flow $2,600,000

(2,000,000+600,000)

Therefore the Project cash flow will be $2,600,000

C. If the tax rate dropped to 30%, how would that change your answer to Part a

Operating income before taxes $1,000,000

Taxes (30%)300,000

(30%*1,000,000)

Operating income after taxes$700,000

(1,000,000-300,000)

Add back depreciation2,000,000

Project cash flow$2,700,000

(2,000,000+700,000)

Based on the above Calculation the project’s cash flow would increase by the amount of $100,000 ($2,700,000-$2,600,000)

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