A project currently generates sales of $21 million, variable costs equal 50% of

Question

A project currently generates sales of $21 million, variable costs equal 50% of sales, and fixed costs are $4.2 million. The firm’s tax rate is 35%. Assume all sales and expenses are cash items.

What are the effects on cash flow, if sales increase from $21 million to $23.1 million? (Input the amount as positive value. Enter your answer in dollars not in millions.)

What are the effects on cash flow, if variable costs increase to 65% of sales? (Input the amount as positive value. Enter your answer in dollars not in millions.)

A project currently generates sales of $21 million, variable costs equal 50% of sales, and fixed costs are $4.2 million. The firm’s tax rate is 35%. Assume all sales and expenses are cash items.

Explanation / Answer

The base case cash flow is as shown below:

a. When the sales increases to 23.1 Million the changes is as shown :

So Cash flow increases by 4777500 -4095000 = $682,500

b. When the variable cost increases to 65%, the cash flow is as shown below:

So Cash flow decreases by 4095000 - 2047500 = $2,047,500

Sales 21000000 Variable cost 50% 10500000 Fixed costs 4200000 Profit before tax 6300000 Taxes at 35% 2205000 Profit after tax 4095000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.