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 $26,100, and the company expects to sell 1,460 per year. The company currently sells 1,960 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,780 units per year. The old board retails for $22,000. Variable costs are 56 percent of sales, depreciation on the equipment to produce the new board will be $1,410,000 per year, and fixed costs are $1,310,000 per year. If the tax rate is 40 percent, what is the annual OCF for the project?

Explanation / Answer

Operating cash flows

Operating cash flows = $9,837,984.

Particulars New model Sales (units) (A) 1460 Selling price (B) $26,100.00 Sales value [C=(A*B)] $38,106,000.00 Minus Variable costs (56% of C) $21,339,360.00 Contribution $16,766,640.00 Minus Fixed costs $1,310,000.00 Profit before depreciation and tax $15,456,640.00 Minus: Depreciation $1,410,000.00 Profit before tax $14,046,640.00 Tax = 40% $5,618,656.00 Profit after tax $8,427,984.00 Add: Depreciation $1,410,000.00 Operating Cash flows $9,837,984.00

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.