The financial staff od Carin Communications has identified the fallowing informa

Question

The financial staff od Carin Communications has identified the fallowing information for the first year of the roll-out of its new proposed services:

            Projected sales                                                                      $18 Million

            Operating cost (not to including depreciation)                       $9 Million

            Depreciation                                                                          $4 Million

            Interest expense                                                                    $3 Million

The company faces a 40% tax rate. What is the project’s operation cash flow for the first year (t=1)?

Explanation / Answer

($ in million) Sales 18 Less: Operating costs 9 Depreciation 4 Interest 3 Profit before tax 2 Less: Tax @40% 0.8 Profit after tax 1.2 Add: Depreciation 4 Operations cash flow 5.2

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