Question:
Chip's Home Brew Whiskey management forecasts that if the firm sells every bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 93 % as high if the price is raised 10 percent. Chip's variable cost per bottle is $10, and the net fixed cash cost for the year is $100,000. Amortization and Depreciation charges are $20,000, and the firm has a 30 % marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What can be the effect of the price increase on the firm's FCF for the year?
At $20 per bottle the Chip's FCF is $ __________ and at the new price Chip's FCF is $_________.