Question

Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,900, and the company expects to sell 1,540 per year. The company currently sells 2,040 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,860 units per year. The old board retails for $22,800. Variable costs for both boards are 53 percent of sales, depreciation on the equipment to produce the new board will be $1,490,000 per year, and fixed costs are $1,390,000 per year. If the tax rate is 30 percent, what is the annual OCF for the project? (Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.) OCF $ rev: 05_06_2019_QC_CS-167721

Answer 1

operating cash flow: 11,752,938

Step-by-step explanation:

new board sales: 1,540 x 26,900 = 41,426,000

decling in old board: (2,040 - 1,860) x 22,800 = (4,104,000)

net sales increase 37,322,000

proceeds after cost and taxes:

(sales x (1 -variable cost) - fixed cost) x (1-t)

(37,322,000 (1 - 0.53) - 1,390,000) (1-0.3) = 11.305.938‬‬

depreciation tax shield:

1,490,000 x 30% = 447,000

operating cash flow: 11,752,938