How Much Cash Flow Before Tax and Interest Is Necessary

question 75

Multiple Choice

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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Definitions:

Assets

Assets that a company possesses or has rights to, which are anticipated to bring in economic gains or advantages in the future.

Operating Cycle

The period it takes for a business to buy inventory, sell products or services, and collect cash from sales.

Current Liability

Financial obligations that are due to be paid within one year or within the normal operating cycle of a business.

Working Capital

The measure of a company's operational efficiency and short-term financial health, calculated as current assets minus current liabilities.