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 $26,200, and the company expects to sell 1,470 per year. The company currently sells 1,970 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,790 units per year. The old board retails for $22,100. Variable costs are 57 percent of sales, depreciation on the equipment to produce the new board will be $1,420,000 per year, and fixed costs are $1,320,000 per year.

If the tax rate is 35 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).)

Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,200, and the company expects to sell 1,470 per year. The company currently sells 1,970 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,790 units per year. The old board retails for $22,100. Variable costs are 57 percent of sales, depreciation on the equipment to produce the new board will be $1,420,000 per year, and fixed costs are $1,320,000 per year.

Explanation / Answer

New existing Sales units 1470 1790 Selling price 26200 22100 Total sales 38514000 39559000 Less : variable cost (57%) 21952980 22548630 Depriciation 1420000 Fixed cost 1320000 Net Income 19212980 Less cost of contribution lost from existing sound board ( 1970-1790)*22100 * 43% 1710540 Net Incremental income 17502440 Tax @ 35% 6125854 Net income after tax 11376586 OCF Net income after tax 11376586 Add Depriciation 1420000 OCF for the project 9956586

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