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Methods of Evaluating Capital Projects

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Discuss the effect of a volume increase in sales, a price increase in sales, and a cost decrease on the net operating income.

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Solution Summary

This report is an analysis of impacts as a result in increases in sales, decreases in expenses, and their effects on the reporting of income and expenses with regard to the Income Statement. It is a brief discussion of how these items will affect the operation of a firm from a reporting standpoint.

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To effectively present this, let's start with a picture of the Income Statement:

SALES
(less cost of goods sold)

= Gross Profit

(less operating expenses)
(less other expenses)

= Earnings Before Interest and Taxes (EBIT)

(less Interest)
(less Taxes)

= Net Profit (net operating ...

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