Question

The Carla Vista Co. is going to take on a project that is expected to increase its EBIT by $90,000, its fixed cost cash expenditures by $98,000, and its depreciation and amortization by $85,000 next year. If the project yields an additional 10 percent in revenue, what percentage increase in the project's EBIT will result from the additional revenue? (Round answer to 1 decimal place, e.g. 15.2.) The percentage increase in pretax operating cash flow driven by the additional revenue will be %.

Answer 1

Answer and Explanation:

To determine the percentage increase in the project's EBIT resulting from the additional revenue, we need to calculate the change in EBIT and then express it as a percentage of the original EBIT.

The change in EBIT can be calculated by subtracting the increase in fixed cost cash expenditures and depreciation and amortization from the increase in EBIT:

Change in EBIT = Increase in EBIT - Increase in fixed cost cash expenditures - Increase in depreciation and amortization

Change in EBIT = $90,000 - $98,000 - $85,000

Next, we calculate the percentage increase in EBIT by dividing the change in EBIT by the original EBIT and multiplying by 100:

Percentage increase in EBIT = (Change in EBIT / Original EBIT) * 100

However, the original EBIT is not provided in the question. Therefore, without this information, we cannot determine the percentage increase in the project's EBIT resulting from the additional revenue.

As for the percentage increase in pretax operating cash flow driven by the additional revenue, we don't have enough information to calculate it. The question only provides information about the increase in fixed cost cash expenditures, depreciation and amortization, and the expected increase in EBIT. We would need additional data to calculate the percentage increase in pretax operating cash flow.