Hyperion, Inc. currently sells its latest high-speed color printer, the Hyper 50

Question

Hyperion, Inc. currently sells its latest high-speed color printer, the Hyper 500, for $350. Its cost of goods sold for the Hyper 500 is $150 per unit, and this year’s sales are 10,000 units. Hyperion plans to lower the price to $300 per unit next year and, the company expects this can increase the sales of next year to 15,000 units. If Hyperion were to keep the price at $350, then the company expects the sales would still be 10,000 units for next year. (In both cases, the cost per unit sold would remain at $150 next year.) NOT THIS PART The annual depreciation expense is $150,000 and the marginal tax rate is 35%. What is the incremental EBIT of such a price drop for next year? PLEASE ONLY SOLVE THIS PART Following the above question question, what is the incremental OCF of such a price drop for next year?

Explanation / Answer

Selling @ $350 Selling @ $300 Units of sales 10000 15000 Sales revenue 3500000 4500000 (10000*350) (15000*300) (-) Cost of goods sold 1500000 2250000 (10000*150) (15000*150) Gross Margin 2000000 2250000 Depreciation expense 150000 150000 EBIT 1850000 2100000 Income tax expense @ 35% 647500 735000 Net Income 1202500 1365000 (+) Depreciation 150000 150000 Operating cash flow (OCF) 1352500 1515000 Incremental EBIT = 2100000-1850000 = $250000 Incremental OCF = 1515000-1352500 = $162500

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

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