Problem 13-2 Operating Cash Flow The financial staff of Cairn Communications has
ID: 2797851 • Letter: P
Question
Problem 13-2
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:
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.
$__________
Projected sales $20 million Operating costs (not including depreciation) 7 million Depreciation 4 million Interest expense 4 millionExplanation / Answer
The correct answer is $ 11,000,000
Note :
Operating cash flow =Earnings before interest and taxes-Taxes+Depreciation
Particulars Amount($) Sales 20,000,000 Less:costs 7,000,000 Less:depreciation 4,000,000 EBIT 9,000,000 Less:interest expense 4,000,000 EBT 5,000,000 Less:taxes@40% 2,000,000 Net income 3,000,000