Sensitivity Analysis. A project currently generates sales of $10 million, variable costs equal to 50 percent of

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Sensitivity Analysis. A project currently generates sales of $10 million, variable costs equal to 50 percent of sales, and fixed costs of $2 million. The firm’s tax rate is 35 percent. What are the effects of the following changes on after-tax profits and cash flow?

a. Sales increase from $10 million to $11 million.

b. Variable costs increase to 60 percent of sales.

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