A project currently generates sales of $12 million, variable costs equal 40% of
ID: 2715402 • Letter: A
Question
A project currently generates sales of $12 million, variable costs equal 40% of sales, and fixed costs are $2.4 million. The firm’s tax rate is 40%. Assume all sales and expenses are cash items.
a. What are the effects on cash flow, if sales increase from $12 million to $13.2 million? (Input the amount as positive value. Enter your answer in dollars not in millions.) Cash flow by $
b. What are the effects on cash flow, if variable costs increase to 50% of sales? (Input the amount as positive value. Enter your answer in dollars not in millions.) Cash flow by $
Explanation / Answer
Statement showing analysis Particulars Present Situation a Impact on cash Flow (a) Situation b Impact on cash Flow (b) Sales 12,000,000.00 13,200,000.00 1,200,000.00 12,000,000.00 - Variable cost@40% 4,800,000.00 5,280,000.00 480,000.00 6,000,000.00 1,200,000.00 Contribution=Sales-VC 7,200,000.00 7,920,000.00 720,000.00 6,000,000.00 (1,200,000.00) Fixed Cost 2,400,000.00 2,400,000.00 - 2,400,000.00 - Income =Cont-FC 4,800,000.00 5,520,000.00 720,000.00 3,600,000.00 (1,200,000.00) Tax Rate @40% 1,920,000.00 2,208,000.00 288,000.00 1,440,000.00 (480,000.00) Net Cash inflow 2,880,000.00 3,312,000.00 432,000.00 2,160,000.00 (720,000.00)
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