A project currently generates sales of $11.6 million, variable costs equal to 50

Question

A project currently generates sales of $11.6 million, variable costs equal to 50% of sales, and fixed costs of $3.8 million. The firm’s tax rate is 30%.

What are the effects on the after-tax profits and cash flow, if sales increase from $11.6 million to $13.8 million. (Input all amounts as positive values. Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places.)

What are the effects on the after-tax profits and cash flow, if variable costs increase to 55% of sales.(Input all amounts as positive values. Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places.)

A project currently generates sales of $11.6 million, variable costs equal to 50% of sales, and fixed costs of $3.8 million. The firm’s tax rate is 30%.

Explanation / Answer

Statement showing computations Particulars Amount a) b) Sales    11,600,000.00    13,800,000.00    11,600,000.00 Variable Cost@50%      5,800,000.00      6,900,000.00      6,380,000.00 Contribution=Sales-VC      5,800,000.00      6,900,000.00      5,220,000.00 Fixed Costs      3,800,000.00      3,800,000.00      3,800,000.00 EBIT=Cont-FC      2,000,000.00      3,100,000.00      1,420,000.00 Tax@30%          600,000.00          930,000.00          426,000.00 Earnings after Tax      1,400,000.00      2,170,000.00          994,000.00 After tax Profit      1,400,000.00      2,170,000.00          994,000.00 Cash Flows      1,400,000.00      2,170,000.00          994,000.00 No depreciation is given so after tax profit is equal to cash flows

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