Help The product development team at Meridian Enterprises is considering a newproduct line that will increase annual sales revenue by $125,000 with variablecosts of $35,000. If Meridian Enterprises has a corporate tax rate of 25%,what will be the after-tax income generated by this product line?a. $67,500b. $90,000c. $125,000d. $22,500

To calculate the after-tax income:1. Calculate the Gross Profit:Gross Profit = Sales Revenue -…

Answered: The product development team at…

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 13E

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You are considering adding a microbrewery onto one of your firm's existing restaurants. This will entail an investment of $40,000 in new equipment. The new equipment falls under asset class 43 and has a capital cost allowance (CCA) rate of 30%. If your firm's marginal corporate tax rate is 35%, then what is the value of the microbrewery's CCA tax savings in the first year of operation? a) $2,100 b) $14,000 c) $4,200 d) $12,000
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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 cash flows? 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? Show all working. Do not use Excel.
Hebner Housing Corporation has forecast the following numbers for this upcoming year: Sales = $1,000,000. Cost of goods sold = 600,000. Interest expense = 100,000. Net income = 180,000.The company is in the 40 percent tax bracket. Its cost of goods sold always represents 60 percent of its sales. That is, if the company’s sales were to increase to $1.5 million, its cost of goods sold would increase to $900,000. The company’s CEO is unhappy with the forecast and wants the firm to achieve a net income equal to $240,000. In order to achieve this level of net income, what level of sales will the company have to achieve? Assume that Hebner’s interest expense remains constant.
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1. Answer both questions: 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 cash flows? 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?
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?

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