Here is the scenerio:

If the plant and equipment are depreciated over 4 years to a salvage
value of zero using straight-line depreciation and the fir's tax rate
is 40%. wajat is the projected cash flow for a year with revenue of
40,000

I undestand that the depriation rate for straight line is 1/5 of the
investment of 45,000 that was intiatly invested at the beginning of
the project.

This is my calculation, is it correct?

40,000 (cash flow) - 11,250 (expense-depreciation of equipment)-
16,000 (40 % taxes) = 12,750

As always any and all help will be appreciated.

Hi again!!


Nope, you are not calculating well the cash flow.


Recall from a previous answer the formula to calculate the cash flow of one year:

For each Year we have that:

CF = R - E - T - ChWC

where:
CF = cash flow 
Ri = total revenues of the year
E = expenses of the year 
D = depreciations for the year
T = taxes for the year = t*(R - E - D)  with t = tax rate
ChWCi = Working Capital Change for the year =
      = Current WC - Previous Year WC

Some notes:

DEPRECIATION:
To calculate it, the cost of an asset (investment in plant and
equipment) minus its salvage value, is divided by the number of years
the asset is expected to remain useful and efficient.
Note that the initial Working Capital will not be depreciated.
For a straight line depreciation of an investment with salvage value
of zero, we have for each year:
D = Initial investment / number of depreciation years 
For this problem
D = $45,000 / 4 = $11,250

WORKING CAPITAL:
Since in the statement of the problem is not mentioned you can ignore
this part of the formula.

EXPENSES:
Since in the statement of the problem is not mentioned you must use
zero for this item in the formula.

TAXES:
T = t*(R - E - D) =
  = 0.40*($40,000 - $0 - $11,250) =
  = 0.40 * $28,750 =
  = $11,500


Now we have all we need to calculate the cash flow:
CF = R - E - T =
   = $40,000 - $0 - $11,500 =
   = $28,500


I hope that this helps you. Do not hesitate to request for a
clarification if you need it.

Regards,
livioflores-ga