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 $26,500, and the company expects to sell 1,500 per year. The company currently sells 2,000 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,820 units per year. The old board retails for $22,400. Variable costs are 55 percent of sales, depreciation on the equipment to produce the new board will be $1,450,000 per year, and fixed costs are $1,350,000 per year. Required: If the tax rate is 38 percent, what is the annual OCF for the project?

Explanation / Answer

OCF = $ 22,178,522

Existing model New model Total Sales $ 40,768,000 $ 39,750,000 Variable costs $ 22,422,400 $ 21,862,500 Contribution margin $ 18,345,600 $ 17,887,500 $ 36,233,100 Fixed costs $ 1,350,000 Depreciation expense $ 1,450,000 Income before taxes $ 33,433,100 Income tax @ 38% $ 12,704,578 Income after taxes $ 20,728,522 Depreciation expense $ 1,450,000 OCF $ 22,178,522

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.