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A project currently generates sales of $10.5 million, variable costs equal to 60% of sales, and fixed costs of $2 million. The firm's tax rate is 40%.

a. What are the effects on the after-tax profits and cash flow, if sales increase from $10.5 million to $11.8 million. (Input all amounts as positive values. Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places.)

After-tax profit select (decreased or increased) by $__________ million.
Cash flow select (decreased or increased) by $___________ million.

b. What are the effects on the after-tax profits and cash flow, if variable costs increase to 70% of sales. (Input all amounts as positive values. Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places.)

After-tax profit select (decreased or increased) by $___________ million.
Cash flow select (decreased or increased) by $___________ million.

 

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