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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 $22 million Operating costs (not including depreciation) $11 million Depreciation $4 million Interest expense $3 million The company faces a 30% tax rate
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 | $22 million |
| Operating costs (not including depreciation) | $11 million |
| Depreciation | $4 million |
| Interest expense | $3 million |
The company faces a 30% 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.
Expert Solution
Operating CashFlow = EBIT*(1- Tax rate) + Depreciation - Interest Expenses(1-Tax Rate)
- EBIT = Sales- Operating costs - Depreciation
EBIT = $22 million - $11 million - $4 million = $7 million
- Operating CashFlow = $7 million*(1- 0.30) + $4 million - $3 million(1- 0.30)
Operating CashFlow = $4.9 million + $4 million - $2.1 million
Operating CashFlow = $6.8 million
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