Telewitz communication is trying to estimate the first year operating cash flow (at t=1) for a proposed project. The financial staff has collected the following information.
Projected sales $10,000,000
Operating costs( not including depreciation) $7,000,000
Depreciation $2,000,000
Interest expense $2,000,000
The company faces a 40% tax rate. What is the project's operating cash flow for the first year (t=1)?
| In $ | ||
| Computation Of Operating Cash Flows | ||
| Sales | 1,00,00,000.00 | |
| Less | Operating Costs | 70,00,000.00 |
| Less | Depreciation | 20,00,000.00 |
| Less | Interest | 20,00,000.00 |
| EBT | -10,00,000.00 | |
| Less | Tax Saving@ 40% | -4,00,000.00 |
| EAT | -6,00,000.00 | |
| Add | Depreciation | 20,00,000.00 |
| Operating Cash Flows | 14,00,000.00 |
| Note | Depreciation is Added Back as it is a Non Cash Expense But its Tax savings Reduces the Cash Outflow hence it is deducted First |
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