Question
A project currently generates sales of $18 million, variable costs equal 60% of sales, and fixed costs are $3.6 million. The firm's tax rate is
A project currently generates sales of $18 million, variable costs equal 60% of sales, and fixed costs are $3.6 million. The firm's tax rate is 35%. Assume all sales and expenses are cash items.
a. What are the effects on cash flow, if sales increase from $18 million to $19.8 million?
b. What are the effects on cash flow, if variable costs increase to 70% of sales?
Step by Step Solution
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Step: 1
a When sales increase from 18 million to 198 million the total variable costs will also increase b...
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Fundamentals of Corporate Finance
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
6th Canadian edition
1259024962, 978-1259024962
