Question

FIN 650 - Problem 11-02 (Project Cash Flow)

The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:

Projected sales	$18 million
Operating costs (not including depreciation)	$7 million
Depreciation	$4 million
Interest expense	$4 million

The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.

$__________

Answer 1

Calculating the Project's Operating Cash flow(OCF) for the first year (t = 1):-

OCF = [Projected Sales - Operating costs (not including depreciation)](1-Tax Rate) + Depreciation(Tax rate)

OCF = ($18 million - $7 million)(1-0.25) + ($4 million)(0.25)

OCF = $8,250,000 + $1,000,000

OCF = $9,250,000

So, OCF of the project is $9,250,000

If you need any clarification, you can ask in comments.    

If you like my answer, then please up-vote as it will be motivating