(Solution Download) The pretax operating cash flow of Memphis Motors declined so


The pretax operating cash flow of Memphis Motors declined so much during the recession of 2008 and 2009 that the company almost defaulted on its debt. The owner of the company wants to change the cost structure of his business so that this does not happen again. He has been able to reduce fixed costs from $500,000 to $300,000 and, in doing so, reduce the Cash Flow DOL for Memphis Motors from 3.0 to 2.2 with sales of $1,000,000 and pretax operating cash flow of $250,000. If sales declined by 20 percent from this level, how much more pretax operating cash flow would Memphis Motors have with the new cost structure than under the old?

 







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