Question: Chip s Home Brew Whiskey management forecasts that if the firm
Chip’s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 90 percent as high if the price is raised 10 percent. Chip’s variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm’s FCF for the year?
Answer to relevant QuestionsIf you were interested in calculating the probability that your project will have a positive FCF, what type of risk analysis tool will you most likely use?Silver Polygon, Inc., has determined that if its revenues were to increase by 10 percent, then EBIT would increase by 25 percent to $100,000. The fixed costs (cash only) for the firm are $100,000. Given the same 10 percent ...Hermann Corporation is considering an investment of $375 million with expected after-tax cash inflows of $115 million per year for seven years and an additional after-tax salvage value of $50 million in Year 7. The required ...Why does the market value of the claims on the assets of a firm equal the market value of the assets?Under what conditions is the WACC the appropriate discount rate for a project?
Post your question