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 $27,400, and the company expects to sell 1,590 per year. The company currently sells 2,090 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,910 units per year. The old board retails for $23,300. Variable costs are 53 percent of sales, depreciation on the equipment to produce the new board will be $1,540,000 per year, and fixed costs are $1,440,000 per year.

If the tax rate is 30 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 $27,400, and the company expects to sell 1,590 per year. The company currently sells 2,090 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,910 units per year. The old board retails for $23,300. Variable costs are 53 percent of sales, depreciation on the equipment to produce the new board will be $1,540,000 per year, and fixed costs are $1,440,000 per year.

Explanation / Answer

No of existing Model reduced = 2090 - 1910 = 180

Annual OCF for the project = ((New Board Sell Price * No of New Board to be sold - Existing Model Sell price*No of existing Model reduced)*(1-variable cost %) -Depreciation - Fixed cost)*(1-tax rate) + Depreciation

Annual OCF for the project =( (27400*1590 - 23300* 180)*(1-53%) -1540000 - 1440000)*(1-30%) + 1540000

Annual OCF for the project = $ 12,407,388

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