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 $26,600, and the company expects to sell 1,510 per year. The company currently sells 2,010 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,830 units per year. The old board retails for $22,500. Variable costs are 56 percent of sales, depreciation on the equipment to produce the new board will be $1,460,000 per year, and fixed costs are $1,360,000 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

old board new board No of units sold 1510 1830 Sales 26600 22500 total sales 40166000 41175000 variable cost 22492960 23058000 Contribution 17673040 18117000 fixed cost 2820000 2820000 PBT 14853040 15297000 tax 5941216 6118800 PAT 8911824 9178200 add:depreciation 1460000 1460000 OCF 10371824 10638200

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