Question

A project currently generates sales of $11.2 million, variable costs equal to 50% of sales, and fixed costs of $2.1 million. The firm's tax rate is 20%. a. What are the effects on the after-tax profits and cash flow, if sales increase from $11.2 million to $12.6 million. (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) by $ Cash flow (Click to select) by $0 million million b. What are the effects on the after-tax profits and cash flow. If variable costs increase to 60% 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) by $ Cash flow (Click to select) by $ O m million. illion.

Answer 1

	Base case		(a)		(b)
Sales	11.200	Million	12.600	Million	11.200	Million
Variable costs	5.600	Million	6.300	Million	6.720	Million
Fixed costs	2.100	Million	2.100	Million	2.100	Million
Pre tax profit	3.500	Million	4.200	Million	2.380	Million
Taxes @ 20%	0.700	Million	0.840	Million	0.476	Million
After tax profit	2.800	Million	3.360	Million	1.904	Million
Requirement a
After tax profit increase by 0.560 million
Cash flow increase by 0.560 million
Requirement b
After tax profit decrease by 0.896 million
Cash flow decrease by 0.896 million