13-2 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 $18 million

Operating costs (not including depreciation) $ 9 million

Depreciation $ 4 million

Interest expense $ 3 million.

The company faces a 25% tax rate. What is the projects cash flow for the first year (t = 1)?

Answer: $7.75 million.

Suppose the values for this problem change to:

Tax Rate: 29%

Projected Sales: $17 million

What is the project's cash flow for the first year?