Question

Operating 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 $25 million

Operating costs (not including depreciation) $12 million

Depreciation $4 million

Interest expense $4 million

The company faces a 30% tax rate. What is the project's operating cash flow for the first year (t = 1)? Write out your answer completely. For example, 2 million should be entered as 2,000,000.

Answer 1

Operating Cash Flow

Sales

Less: Operating Costs

Less: Depreciation Expenses

EBIT

Operating Cash Flow = [EBIT x (1 - Tax rate)] + Depreciation Expenses

Operating Cash Flow = [$9,000,000 x (1 - 0.30)] + $4,000,000

Operating Cash Flow = [$9,000,000 x 0.70] + $4,000,000

Operating Cash Flow = $6,300,000 + $4,000,000

Operating Cash Flow = $10,300,000

Therefore, the project's operating cash flow for the first year will be $10,300,000