# The financial staff of Carin Communications has identified the following information for the...

## Question:

The financial staff of Carin 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 40% tax rate.

What is the project's operating cash flow for the first year {eq}(t=1) {/eq}?

## Operating Cash Flow:

Operating cash flow tracks the amount of cash a firm generates from its usual business operation. Unlike net income that includes both cash and non-cash items, operating cash flow only includes revenue and cost that are cash in nature.

We can use the following formula to compute operating cash flow (OCF):

• OCF = (sales - costs - depreciation - interest cost)*(1 - tax rate) + depreciation
• OCF = (18 - 9 - 4 - 3) *(1 - 40%) + 4
• OCF = 5.2

That is, the operating cash flow for year 1 is 5.2 million.