Question
The pretax operating cash flow of Carla Vista Motors declined so much during the recession of 2008 and 2009 that the company almost defaulted on
The pretax operating cash flow of Carla Vista Motors declined so much during the recession of 2008 and 2009 that the company almost defaulted on its debt. The owner of the company wants to change the cost structure of his business so that this does not happen again. He has been able to reduce fixed costs from $480,000 to $319,000 and, in doing so, reduce the Cash Flow DOL for Carla Vista Motors from 3.0 to 2.4 with sales of $1,080,000 and pretax operating cash flow of $280,000. If sales declined by 20 percent from this level, how much more pretax operating cash flow would Carla Vista Motors have with the new cost structure than under the old? (Round answer to nearest whole dollar, e.g. 5,275.)
Carla Vista Motors would have $ more pretax operating cash flow with the new cost structure than under the old. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started