A company is considering the sale of a new sound board used in recording studios
ID: 2707291 • Letter: A
Question
A company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,400, and the company expects to sell $1,500 per year. The company currently sells 1,850 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,520 units per year. The old board retails for $22,300. Variable cost are 55 percent of sales, depreciation on the equipment to produce the new board will be $1,975,000 per year, and fixed cost are $2,400,000 per year. If the tax rate is 38 percent, what is the annual OCF for the project?
Explanation / Answer
Annual operating Cash flow = ((26400-55%*26400)*1500 - (22300-55%*22300)*330 - 2400000)*0.62 + 1975000*0.38
= $ 8,257,739.00
Answer: Annual OCF for the project = $ 8,257,739
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