Chip$$s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake$-$Bite for $$20,$ then the demand for the product will be $15,000$ bottles per year, whereas sales will be $90$ percent as high if the price is raised $10$ percent. Chip$$s variable cost per bottle is $$10,$ and the total fixed cash cost for the year is $$100,000.$ Depreciation and amortization charges are $$20,000,$ and the firm has a $30$ percent marginal tax rate.

Management anticipates an increased working capital need of $$3,000$ for the year. What will be the effect of a price increase on the firm$$s FCF for the year?

Hint: Compute FCF under each alternative and compare the results.

Original Sales Price: $$20\mathrm{.}00$

Price Adjustment:

Adjusted Sales Price: $$22\mathrm{.}00$

Original Product Demand: $15,000$

Demand Adjustment:

Adjusted Product Demand:

Variable Cost per Bottle: $$10\mathrm{.}00$

Fixed Cash Cost: $$100,000$

Depreciation & Amortization: $$20,000$

Tax Rate: $30\mathrm{.}00\%$

Change in Working Capital: $$3,000$

Current With Price Hike

Revenue:

Variable Cost:

Fixed Cost:

Depreciation & Amortization:

EBIT:

Tax:

NOPAT:

Depreciation & Amortization:

Working Capital:

Free Cash Flow: