A project currently generates sales of $21 million, variable costs equal 50% of sales, and fixed costs are $4.2 million. The firm’s tax rate is 35%. Assume all sales and expenses are cash items.
a. What are the effects on cash flow, if sales increase from $21 million to $23.1 million? (Input the amount as positive value. Enter your answer in dollars not in millions.)
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.)