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.

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 ????

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.

Explanation / Answer

Note:Loss in sale of old unit is negative cash flow.

Particular New Board Sales unit 1410 Selling Price per unit 25600 Sale Value 36096000 Less: loss of Sale of Old Board(180*21500) -3870000 Total 32226000 Less:Variable Cost 18046560 Less: Depreciation 1360000 Less:Fixed Cost 1260000 EBIT 11559440 Less: Tax @ 40% 4623776 Add: Depreciation 1360000 Annual operating Cash flow (OCF) 8295664

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