How much cash flow BEFORE tax and interest is necessary to support a project that requires $4 million annually for equity investors and $2 million annually in interest payments if the firm's tax rate is 35%?

A. $7.40 million

B. $8.10 million

C. $8.15 million

D. $8.85 million

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Expert Solution

C. $8.15 million

Cash flows before tax & interest = 8.15 million

- interest payment = 2.0 million

pretax cash flow = 6.15 million

taxes = 6.15 * .35 = 2.15 million

after tax cash flow = 4.00 million

The cash flow BEFORE tax and interest is $8.15 million.

Renze Joy Candido answered 2 years ago

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