Stellar Plastics is analyzing a proposed project. The company expects to sell 13

Question

Stellar Plastics is analyzing a proposed project. The company expects to sell 13,000 units, give or take 4 percent. The expected variable cost per unit is $7.00 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $30,000. The tax rate is 34 percent. The sale price is estimated at $12.00 a unit, give or take 4 percent. What is the operating cash flow for a sensitivity analysis using total fixed costs of $32,000?

Explanation / Answer

OCF = [(13,000 x ($12.00 - $7.00)] - $32,000][1- .34] +($30,000 x .34) =

OCF = [$65000 - $32000][0.66] + $10200 = $31980

ANSWER : $31980

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