Question

The Can-Do Co. is analyzing a proposed project with anticipated sales of 12,000 units, give or take 4 percent. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The cost estimates have a range of plus or minus 6 percent. The depreciation expense is $29,600. The tax rate is 34 percent. The sale price is estimated at $14.99 a unit, give or take 1 percent.

Required:
1. What is the operating cash flow under the best-case scenario?

Answer 1

$58,236

Step-by-step explanation:

The calculation of operating cash flow is shown below:-

Revenue

15.1399 × 12,480 188,946

Less: Cost of variable

6.58 × 12,480 $82,118

Less: fixed cost $33,840

Remaining revenue $72,988

Less tax (34%) $24,816

Remaining revenue $48,172

Add: Depreciation

$29,600 × 0.34 $10,064

Operating cash flow $58,236

Working note:

Sales units (at + 4%)

= 12,000 × 1.04

= 12,480 units

Sales price per unit (at + 1%)

= 14.99 × 1.01

= 15.1399 per unit

Variable cost ( at - 6%)

= 7 × 0.94

= 6.58 per unit

Fixed cost (-6%) =$36,000 × 0.94

=$33,840