Rolston Music Company is considering the sale of a new sound board used in recor
ID: 2711838 • Letter: R
Question
Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,800, and the company expects to sell 1,530 per year. The company currently sells 2,030 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,850 units per year. The old board retails for $22,700. Variable costs are 54 percent of sales, depreciation on the equipment to produce the new board will be $1,480,000 per year, and fixed costs are $1,380,000 per year.
Required: If the tax rate is 34 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).)
OCF= ____________
Explanation / Answer
Answer:
Assumed project considering of both Sale of New Sound Board and Sales Fall of Existing Model..
Annual Operating Cash Flow = Profit After Tax + Depreciation
Here is the calculation and working of the same:
Rolston Music Company
Computation of Annual Operating Cash Flow for the project
Particulars
Calculation
Amount
Sales Revenue
1850 Units x $22,700
$41,995,000
1530 Units x $26,800
$41,004,000
Total Sales Revenue
$82,999,000
Less: Variable Cost (54% of Sales)
$82,999,000 x 54%
($44,819,460)
Contribution
$38,179,540
Less: Fixed Cost
($1,380,000)
Operating Profit before Depreciation and Tax
$36,799,540
Less: Depreciation
($1,480,000)
Operating Profit After Depreciation before Tax
$35,319,540
Less: Tax @ 34%
($12,008,644)
Profit After Tax
$23,310,896
Add: Depreciation
$1,480,000
Annual Operating Cash Flow
$24,790,896
If considering only New Sound Board as a Project then, the annual operating cash flow from new project as follows:
Computation of Annual Operating Cash Flow for the project
Particulars
Calculation
Amount
Sales Revenue From New Model
1530 Units x $26,800
$41,004,000
Less: Variable Cost (54% of Sales)
$41,004,000 x 54%
($22,142,160)
Contribution
$18,861,840
Less: Fixed Cost
($1,380,000)
Operating Profit before Depreciation and Tax
$17,481,840
Less: Depreciation
($1,480,000)
Operating Profit After Depreciation before Tax
$16,001,840
Less: Tax @ 34%
($5,440,626)
Profit After Tax
$10,561,214
Add: Depreciation
$1,480,000
Annual Operating Cash Flow
$12,041,214
Particulars
Calculation
Amount
Sales Revenue
- From Existing Model
1850 Units x $22,700
$41,995,000
- From New Model
1530 Units x $26,800
$41,004,000
Total Sales Revenue
$82,999,000
Less: Variable Cost (54% of Sales)
$82,999,000 x 54%
($44,819,460)
Contribution
$38,179,540
Less: Fixed Cost
($1,380,000)
Operating Profit before Depreciation and Tax
$36,799,540
Less: Depreciation
($1,480,000)
Operating Profit After Depreciation before Tax
$35,319,540
Less: Tax @ 34%
($12,008,644)
Profit After Tax
$23,310,896
Add: Depreciation
$1,480,000
Annual Operating Cash Flow
$24,790,896
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.