Rolston Music Company is considering the sale of a new sound board used in recor

Question

Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,700, and the company expects to sell 1,520 per year. The company currently sells 2,020 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,840 units per year. The old board retails for $22,600. Variable costs are 57 percent of sales, depreciation on the equipment to produce the new board will be $1,470,000 per year, and fixed costs are $1,370,000 per year.

If the tax rate is 35 percent, what is the annual OCF for the project? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount (e.g., 1,234,567).)

Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,700, and the company expects to sell 1,520 per year. The company currently sells 2,020 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,840 units per year. The old board retails for $22,600. Variable costs are 57 percent of sales, depreciation on the equipment to produce the new board will be $1,470,000 per year, and fixed costs are $1,370,000 per year.

Explanation / Answer

Revised Income Statement Sales of New Model (1520*26700) 40584000 Loss of Sales of Old Model 22600*(2020 - 1840) -4068000 Net Sales 36516000 Less Variable Costs (36516000*57%) 20814120 Fixed Costs 1370000 Depreciation 1470000 EBIT 12861880 Less Taxes 4501658 Net Income 8360222 Operating Cash Flow = Net Income + Depreciation = 8360222+1470000 = 9830222 Hense, answer is $9830222

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