Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259722615
Author: Richard A Brealey, Stewart C Myers, Alan J. Marcus Professor
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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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%.
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intermediate calculations. Enter your answers in millions rounded to 3 decimal
places.)
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b. 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.)
After-tax profit| (Click to select) v by $
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Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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