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Homework answers / question archive / 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 $20 million Operating costs (not including depreciation) 8 million Depreciation 6 million Interest expense 3 million The company faces a 40% tax rate

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 $20 million Operating costs (not including depreciation) 8 million Depreciation 6 million Interest expense 3 million The company faces a 40% tax rate

Finance

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 $20 million
Operating costs (not including depreciation) 8 million
Depreciation 6 million
Interest expense 3 million

The company faces a 40% 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.

$ _______________

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The operating cash flow is computed as shown below:

= (Projected sales - operating costs - depreciation) + depreciation - tax expenses

The tax expenses is computed as follows:

= (Projected sales - operating costs - depreciation) x tax of 40%

= ($ 20,000,000 - $ 8,000,000 - $ 6,000,000 ) x 40%

= $ 2,400,000

So, the amount will be as follows:

= ($ 20,000,000 - $ 8,000,000 - $ 6,000,000) + $ 6,000,000 - $ 2,400,000

= $ 9,600,000

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