Fundamentals Of Corporate Finance, 9th Edition
9th Edition
ISBN: 9781260052220
Author: Richard Brealey; Stewart Myers; Alan Marcus
Publisher: McGraw-Hill Education
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Chapter 10, Problem 5QP
a)
Summary Introduction
To determine: The effect of change in sales on after-tax profit.
b)
Summary Introduction
To determine: The effect of change in variable costs on after-tax profit.
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A project currently generates sales of $17 million, variable costs equal 40% of sales, and fixed costs are $3.4 million. The firm’s tax rate is 30%. Assume all sales and expenses are cash items.
a. What are the effects on cash flow, if sales increase from $17 million to $18.7 million? (Input the amount as positive value. Enter your answer in dollars not in millions.)
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b. What are the effects on cash flow, if variable costs increase to 60% of sales? (Input the amount as positive value. Enter your
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You are analyzing a project and have developed the following estimates: unit sales = 2,150, price per unit = $84, variable cost per unit = $57, fixed costs per year = $13,900. The depreciation is $8,300 a year and the tax rate is 35 percent. What effect would an increase of $1 in the selling price have on the operating cash flow?
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