A project currently generates sales of $7 million, variable costs equal 60% of sales, and fixed costs are $1.4 million. The firm’s tax rate is 40%. Assume all sales and expenses are cash items.
a. What are the effects on cash flow, if sales increase from $7 million to $7.7 million? (Input the amount as positive value. Enter your answer in dollars not in millions.)
Cash flow ________ by $ ___________
b. What are the effects on cash flow, if variable costs increase to 65% of sales? (Input the amount as positive value. Enter your answer in dollars not in millions.)
Cash flow__________ by $ __________