Project grow will result in an increse of 5,000 units per year at a sale price o
ID: 2648110 • Letter: P
Question
Project grow will result in an increse of 5,000 units per year at a sale price of $ 11. each (assume 0% inflation). The additional sales will generate additional operating expenditures of 9. per unit plus 3,000 in fixed operating cost. In addition, the firm will see an increase in depreciation expense of 12,000 a year. The firm anticipates it will remain at the current marginal rate of 40% and thagt any projectlosses will offset other profits in the firm.
What is the interin incremental net cash flow?
Explanation / Answer
Calculation of interim incremental net cash flow Incremenatal sale (5000 units *$11) $ 55,000.00 Less: Incremenatal Variable Expenses (5000 units *$9) $ (45,000.00) Less: Incremenatal Fixed Expenses $ (3,000.00) Less: Incremenatal Depreciation Expenses $ (12,000.00) Incremenatal Profit before tax $ (5,000.00) Add: Tax Savings on loss = 5000*40% $ 2,000.00 Inremental Profit after tax $ (3,000.00) Add: incremental Depreciation $ 12,000.00 Interim incremental net cash flow $ 9,000.00
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