The Outpost currently sells short leather jackets for $349 each. The firm is con

Question

The Outpost currently sells short leather jackets for $349 each. The firm is considering selling long coats also. The coats would sell for $689 each and the company expects to sell 900 a year. If the firm decides to carry the long coat, management feels that the sales of the short jacket will decline from 1,420 to 1,265 units. Variable costs on the jacket are $210 and $445 on the long coat. The fixed costs for this project are $42,000, depreciation is $11,000 a year, and the tax rate is 33 percent. What is the projected operating cash flow for this project?

Explanation / Answer

What is the projected operating cash flow for this project?

Details

Sell Price per Long Coat = $ 689

Variable cost per unit = $ 445

Contribution Margin per Long Coat = 689-445 = $ 244

Sell Price per Short Coat = $ 349

Variable cost per unit = $ 210

Contribution Margin per Short Coat = 349-210 = $ 139

Additional Fixed Cost = $ 42000

Additional Depreciation for this project = $ 11000

Tax rate = 33%

Expected Quantity of Long coat to be sold = 900

Expected Quantity of Short coat to be declined = 1420-1265 = $ 155

Working:

Projected operating cash flow for this project :

Contribution = 244*900 = 219600

Less: Additional Fixed Cost = 42000

Less: Oppurtunity Cost = 139*155 = $ 21545

Less Depreciation = 11000

Net Income from project before tax = $ 145055

Less: Tax expenses = 33%*145055 = $ 47868.15

Net Income from project after tax = $ 97,186.85

Add; Depreciation = $ 11000

Projected operating cash flow for this project = $ 108,186.85

Answer

Projected operating cash flow for this project = $ 108,186.85

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