Question

Precise Machinery is analyzing a proposed project. The company expects to sell 2,100 units, give or take 5 percent. The expected variable cost per unit is $260 and the expected fixed costs are $589,000. Cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $129,000. The sales price is estimated at $750 per unit, give or take 2 percent. The tax rate is 35 percent. The company is conducting a sensitivity analysis on the sales price per unit using a sales price estimate of $755. What is the operating cash flow based on this analysis

Answer 1

$337,975

Step-by-step explanation:

Operating Cash Flow:

Operating Cash Flow

{[($755 - $260) x 2,100 units] - $589,000} {1 - 0.35} + {$129,000 x 0.35}

{[$495 x 2,100 units] - $589,000} {0.65} + {$129,000 x 0.35}

{$1,039,500 - $589,000} {0.65} + $45,150

{$450,500‬} {0.65} + $45,150

$292,825 + $45,150

$337,975