A-Pro Ltd has a project (lasting for 10 years) currently generates turnover of R10 million with variable costs equal to 50% of sales and fixed costs of R2 million. The tax rate is 35% and the discount rate is 12%.

a) What will the effects be if the following changes are each made separately on aftertax profits and cash flow?

• Sales increase from R10 million to R11 million;
• Variable costs increase to 65% of sales