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A project currently generates sales of $11.5 million, variable costs equal to 40% of sales, and fixed costs of $3.5 million. The firm’s tax rate is 35%.

a) What are the effects on the after-tax profits and cash flow, if sales increase from $11.5 million to $12.5 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: (increased or decreased) by $_____ million

Cash flow (increased or decreased) by $______ million

b) What are the effects on the after-tax profits and cash flow, if variable costs increase to 60% 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: (increased or decreased) by $_____ million

Cash flow: (increased or decreased) by $______ million

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91595945

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