A project currently generates sales of $10 million, variable costs equal to 50% of sales, and fixed costs of $2 million. The firm’s tax rate is 35%. What are the effects of the following changes on after-tax profits and cash flows? i) Sales increase from $10 million to $11 million. ii) Variable costs increase to 60%
A project currently generates sales of $10 million, variable costs equal to 50% of sales, and fixed costs of $2 million. The firm’s tax rate is 35%. What are the effects of the following changes on after-tax profits and cash flows? i) Sales increase from $10 million to $11 million. ii) Variable costs increase to 60%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer the following question.
1) a. A project currently generates sales of $10 million, variable costs equal to 50% of sales, and fixed costs of $2 million. The firm’s tax rate is 35%. What are the effects of the following changes on after-tax profits and
i) Sales increase from $10 million to $11 million.
ii) Variable costs increase to 60%
b. In a slow year, Crazy Burgers will produce 1 million hamburgers at a total cost of $1.75 million. In a good year, it can produce 2 million hamburgers at a total cost of $2.25 million. What are the fixed and variable costs of hamburger production?
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