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November 1, 2014

Homework Help: finance

Posted by Marie on Monday, December 10, 2007 at 10:11am.

I'm having a terrible time understanding how to estimate cash flow. My book only provides one example, and it's long and drawn out.

The question I'm working on is this:

A project that is expected to last six years will generate a profit and cash flow contribution before taxes and depreciation of $23,000 per year. It requires the initial purchase of equipment costing $60,000, which will be depreciated over four years. The relevant tax rate is 25%. Calculate the project's cash flows.

I don't even know where to start. Do I assume the depreciation is straight-line, or does that even matter? Do I take out the 60grand from the first year's cash flow? Where/when do I figure in the tax rate--the example in the book doesn't even mention this. Please help! This problem just feels like there isn't enough information, but I'm sure there is, and I'm just not getting it.

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