Effect of the price increase on the firm''s fcf for the year

Reference no: EM132453

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 can be 15,000 bottles per year, whereas sales will be 83 percent as high if the price is raised 12%. Chip's variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Amortization and Depreciation 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 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 $.

Reference no: EM132453

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