A project currently generates sales of $9million, variable costs equal 40% of sa
ID: 2820651 • Letter: A
Question
A project currently generates sales of $9million, variable costs equal 40% of sales, and fixed costs are $1.8 million. The firm’s tax rate is 30%. Assume all sales and expenses are cash items.a. What are the effects on cash flow if sales increase from $9million to $9.9m? (Input the amount as positive value. Enter answer in dollars not millions)
b. What are the effects on cash flow if variable costs increase to 55% of sales? (Input amount as a positive value. Enter your answer in dollars not in millions) A project currently generates sales of $9million, variable costs equal 40% of sales, and fixed costs are $1.8 million. The firm’s tax rate is 30%. Assume all sales and expenses are cash items.
a. What are the effects on cash flow if sales increase from $9million to $9.9m? (Input the amount as positive value. Enter answer in dollars not millions)
b. What are the effects on cash flow if variable costs increase to 55% of sales? (Input amount as a positive value. Enter your answer in dollars not in millions)
a. What are the effects on cash flow if sales increase from $9million to $9.9m? (Input the amount as positive value. Enter answer in dollars not millions)
b. What are the effects on cash flow if variable costs increase to 55% of sales? (Input amount as a positive value. Enter your answer in dollars not in millions)
Explanation / Answer
INCOME STATEMENT Particulars AMOUNT Sales $ 90,00,000 Less: Varaiable Expenses ($40% of $ 9 Million) $ 36,00,000 Gross Revenue $ 54,00,000 Less: Fixed Costs $ 18,00,000 Net income before tax $ 36,00,000 Tax @ 30% $ 10,80,000 Net Income After Tax $ 25,20,000 ANSWER = A) INCOME STATEMENT IF SALES INCREASE FROM $9 MILLION TO $ 9.9 MILLION Particulars AMOUNT Sales $ 99,00,000 Less: Varaiable Expenses ($40% of $ 9.9 Million) $ 39,60,000 Gross Revenue $ 59,40,000 Less: Fixed Costs $ 18,00,000 Net income before tax $ 41,40,000 Tax @ 30% $ 12,42,000 Net Income After Tax $ 28,98,000 When Sales increase from $ 9 Million to $ 9.9 Millon than Cash flow will increase by $ 378,000 ANSWER = B) INCOME STATEMENT IF SALES INCREASE FROM $9 MILLION TO $ 9.9 MILLION Particulars AMOUNT Sales $ 90,00,000 Less: Varaiable Expenses ($55% of $ 9 Million) $ 49,50,000 Gross Revenue $ 40,50,000 Less: Fixed Costs $ 18,00,000 Net income before tax $ 22,50,000 Tax @ 30% $ 6,75,000 Net Income After Tax $ 15,75,000 When Variable expenses are increase from 40% to 55% than than Cash flow will decrease by by $ 945,000
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