A project currently generates sales of $12 million, variable costs equal 40% of sales, and fixed costs are $2.4 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 $12 million to $13.2 million? (Input the amount as positive value. Enter your answer in dollars not in millions.)
Cash flow (Click to select) increases decreases by $
b. What are the effects on cash flow, if variable costs increase to 50% of sales? (Input the amount as positive value. Enter your answer in dollars not in millions.)
Cash flow (Click to select) increases decreases by $