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 $24 million
Operating costs (not including depreciation) $7 million
Depreciation $4 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)?

$11.8 million

Explanation:

Particulars                             Amount

Sales                                      $24 million

Less: Operating costs           $7 million

Less: Depreciation                $4 million

EBIT                                        $13 million

Less: Tx at 40% on EBIT       $5.2 million

Net income before interest  $7.8 million

Add: Depreciation                 $4 million

Operating cash flow             $11.8 million

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