Question
In: Finance
Your cloud computing company is considering an investment into a new set of hardware. A $50...
Your cloud computing company is considering an investment into a new set of hardware. A $50 million dollar investment in a new plant would be depreciated straight-line over 10 years. You could then produce revenues of $30 million per year for 10 years, your variable costs would be $23 million per year, you face a 21% tax rate, and your discount rate is 10%. What is your annual cash flow?
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Expert Solution
| Particulars | $ in millions |
| Revenue per year | 30.00 |
| Less: Variable Costs | 23.00 |
| Earnings before depreciation and tax | 7.00 |
| Less: Depreciation (Cost of asset / Useful life) | 5.00 |
| Earnings before tax | 2.00 |
| Tax at 21% | 0.42 |
| Earnings after tax | 1.58 |
| Add back depreciation | 5.00 |
| Cash flow from operations or annual cash flow | 6.58 |
Therefore, annual cash flow is $6.58 million.
We add back depreciation because it is a non cash expense.
Excel formulas:
jeff jeffy answered 1 year agoRelated Solutions
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