A project currently generates sales of $11.6 million, variable costs equal to 50
ID: 2713340 • Letter: A
Question
A project currently generates sales of $11.6 million, variable costs equal to 50% of sales, and fixed costs of $3.8 million. The firm’s tax rate is 30%.
What are the effects on the after-tax profits and cash flow, if sales increase from $11.6 million to $13.8 million. (Input all amounts as positive values. Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places.)
What are the effects on the after-tax profits and cash flow, if variable costs increase to 55% of sales.(Input all amounts as positive values. Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places.)
A project currently generates sales of $11.6 million, variable costs equal to 50% of sales, and fixed costs of $3.8 million. The firm’s tax rate is 30%.
Explanation / Answer
Statement showing computations Particulars Amount a) b) Sales 11,600,000.00 13,800,000.00 11,600,000.00 Variable Cost@50% 5,800,000.00 6,900,000.00 6,380,000.00 Contribution=Sales-VC 5,800,000.00 6,900,000.00 5,220,000.00 Fixed Costs 3,800,000.00 3,800,000.00 3,800,000.00 EBIT=Cont-FC 2,000,000.00 3,100,000.00 1,420,000.00 Tax@30% 600,000.00 930,000.00 426,000.00 Earnings after Tax 1,400,000.00 2,170,000.00 994,000.00 After tax Profit 1,400,000.00 2,170,000.00 994,000.00 Cash Flows 1,400,000.00 2,170,000.00 994,000.00 No depreciation is given so after tax profit is equal to cash flows