Question

How much cash flow before tax and interest is necessary to support a project if $2 million is used to pay interest, the tax rate is 21%, and equity investors require annual income of $4 million?

Answer 1

The necessary cash flow is $ 7,594,936.70.

Explanation:

To determine the cash flow necessary before taxes and interest to support the project if $ 2 million is used to pay interest, the tax rate is 21%, and equity investors require annual income of $ 4 million, the following calculation must be performed:

X - 0.21X - 2,000,000 = 4,000,000

X - 0.21X = 4,000,000 + 2,000,000

0.79X = 6,000,000

X = 6,000,000 / 0.79

X = 7,594,936.70

Therefore, the necessary cash flow is $ 7,594,936.70.