Question

Question 15 0/1 View Policies Show Attempt History Current Attempt in Progress X Your answer is incorrect. A beauty product company is developing a new fragrance named Happy Forever. There is a probability of 0.49 that consumers will love Happy Forever, and in this case, annual sales will be 1.09 million bottles; a probability of 0.37 that consumers will find the smell acceptable and annual sales will be 170,000 bottles; and a probability of 0.14 that consumers will find the smell unpleasant and annual sales will be only 51,000 bottles. The selling price is $37. and the variable cost is $11 per bottle. Fixed production costs will be $1.10 million per year, and depreciation will be $1.19 million. Assume that the marginal tax rate is 40 percent. What are the expected annual incremental after-tax free cash flows from the new fragrance? Annual incremental cash flows $ 6860584 T. ... ... . ...

Can you Please answer Both problems?

Answer 1

15]

Cash flow = earnings after tax + depreciation.

Earnings before tax = (revenue - variable cost - fixed cost - depreciation)

Expected annual incremental cash flow = sum of (probability of each outcome * cash flow under each outcome).

Expected annual incremental cash flow = $9,240,584.

B14 fx =(B12*B13)+(C12*С13)+(D12*013) А 1 2 Units sold 3 Selling price 4 Revenues 5 Variable cost per unit 6 Variable cost 7 Fixed cost 8 Depreciation 9 Earnings before tax 10 Tax 11 Earnings after tax 12 Cash Flow 13 Probability 14 Expected cash flow Love Acceptable 1,090,000 170,000 $37 $37 $40,330,000 $6,290,000 $11 $11 $11,990,000 $1,870,000 $1,100,000 $1,100,000 $1,190,000 $1,190,000 $26,050,000 $2,130,000 $10,420,000 $852,000 $15,630,000 $1,278,000 $16,820,000 $2,468,000 0.49 $9,240,584 Unpleasant 51,000 $37 $1,887,000 $11 $561,000 $1,100,000 $1,190,000 ($964,000) ($385,600) ($578,400) $611,600 0.37 0.14

Love 1090000 Unpleasant 51000 Acceptable 170000 37 =C2*C3 37 =B2*B3 =D2 D3 11 2 Units sold 3 Selling price 4 Revenues 5 Variable cost per unit 6 Variable cost 7 Fixed cost 8 Depreciation 9 Earnings before tax 10 Tax 11 Earnings after tax 12 Cash Flow 13 Probability 14 Expected cash flow =B2*B5 1100000 1190000 =B4-B6-B7-B8 =B9*40% =B9-B10 =B11+B8 0.49 =(B12*B13)+(C12*С13)+(D12*D13) =C2*C5 1100000 1190000 =C4-C6-C7-C8 =C9*40% =C9-C10 =C11+C8 0.37 =D2*D5 1100000 1190000 =D4-D6-D7-D8 =D9*40% =D9-D10 =D11+D8 0.14