Question
Chips 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
Chips 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. Chips 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 the price increase on the firms FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.) At $20 per bottle the Chips FCF is $ and at the new price Chips FCF is $ .
Step by Step Solution
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Step: 1
Lets calculate the Free Cash Flow FCF for the company at both the initial price of 20 per bottle and the increased price after a 10 raise which is 22 ...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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