Question

# Operating Cash Flow The financial staff of Cairn Communications has identified the following information for the...

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.

 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

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