Question

launching a new product: hard ginger ale, with expected sales of $10 million this year. They do expect there will be loss of sales of $1 million this year and next year in their other products as customers switch to drinking the new ginger ale. The gross profit margin for the new ginger ale is 40%, the gross profit margin of all of the brewer's other products is 30%, and the brewer's marginal corporate tax rate is 35%. Assume all other expenses remain the same. What are the incremental cash flows from operations arising from the new product in year 1

Answer 1

$1.95 million

Step-by-step explanation:

Incremental cash flow is defined as the extra operating cash flow gained by an organization from launching a new product or service. Additional cash flow implies that the cash flow of the company will be increased with the introduction of the new product or service.

$10 million - (40% *$10 million) - $1 million = $5 million

$5 million × 0.6 = $3 million

$3 million × 0.65 = $1.95 million`