A firm has invested $800 in a new machine that is expected to generate cash flows...
A firm has invested $800 in a new machine that is expected to generate cash flows over the next 9 years. The machine will be depreciated on a straight line basis down to zero by the end of its life. The firm projects their annual cash inflows at $800 per year and annual cash outflows at 280 per year. Assuming the tax rate of 34%, determine the firm's cash flow next year.
$
Homework Answers
| Annual cash inflows | 800 |
| less:annual cash outflows | -280 |
| Depreciation expense | -88.89 |
| Income before tax | 431.11 |
| Less:Tax expense (431.11*34%) | - 146.58 |
| Net income | 284.53 |
| Add:depreciation expense (being non cash) | 88.89 |
| Cash flow next year | 373.42 |
working:
Depreciation expense = cost/useful life
= 800/9
= 88.89
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