Question

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) $7 million Depreciation $6 million Interest expense $5 million The company faces a 25% 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.

Answer 1

Operating cash flow$ 11,250,000

Step-by-step explanation:

Operating Cash Flows: t = 1

Sales revenues$20,000,000

Operating costs$7,000,000

Depreciation 6,000,000

Operating income before taxes$7,000,000

Taxes (25%)$1,750,000

Operating income after taxes $ 5,250,000

Add back depreciation 6,000,000

Operating cash flow$ 11,250,000

Operating income before taxes

$20,000,000-$7,000,000=$13,000,000-$6,000,000 =$7,000,000

Taxes (25%× $7,000,000)$1,750,000