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 $25,600, and the company expects to sell 1,410 per year. The company currently sells 1,910 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,730 units per year. The old board retails for $21,500. Variable costs are 56 percent of sales, depreciation on the equipment to produce the new board will be $1,360,000 per year, and fixed costs are $1,260,000 per year.

Required: If the tax rate is 40 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

Additional sales from the project: Sales of New model (1410 units @25600) 36,096,000 Less: Loss of sale of Existing model 3,870,000 (180 units @21500) Incremental Sales 32,226,000 Less: Variable cost @56% of sales 18046560 Contribution margin 14,179,440 Less: Additional Fixed cost 1,260,000 Less: Additional Depreciation 1,360,000 Net Operating income before taxx 11,559,440 Less: Tax @40% 4623776 Net operating iincome after tax 6,935,664 Add: Annual Depreciation 1,360,000 Annual Operating cassh flows 8,295,664

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