I am having a similar problem with the Manual Cutter and Dam Builder tool. Like Agnes I am working in a file geodatabase, on my C drive, with ArcMap Desktop 10.7; the only difference is I have not been able to get the tool to run successfully at all. I've tried running it several times and even let it go overnight, but no luck. It seems to be crashing when the dialog window displays "New DEM created with altered elevation values" as the last line of script.
Has anyone come across this and found a solution? Any help will be greatly appreciated.