Cash Flow Practice Problems

Prepared by Pamela Peterson Drake
  1. Identify each of the following items as either a positive cash flow, negative cash flow, or no effect, and identify the dollar amount (if a cash flow). Assume a marginal tax rate of 40%:

  2. Suppose Congress changed the rates of depreciation for plant and equipment assets such that a more accelerated system of rates is adopted. How would you expect this change to affect the cash flows of a proposed project that involves plant and equipment assets?

  3. Suppose that you are evaluating an asset that costs $400,000 and that is depreciated for tax purposes using MACRS rates for a 5-year asset. Assume a marginal tax rate of 30%.