Chip’s Home Brew Whiskey management forecasts - 94795

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  • From: Business, Finance
  • Posted on: Mon 18 Jan, 2016
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Request Description
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 91 percent as high if the price is raised 14 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?
Solution Description

Old price = $20 and old demand = 15000 bottles

New price = 20 + 14% of 20 = $22.80 and new demand = 91% of 15000 = 13650 bottles

 

At Old Price

At New Price

Revenue