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 $27,200, and the company expects to sell 1,570 per year. The company currently sells 2,070 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,890 units per year. The old board retails for $23,100. Variable costs are 57 percent of sales, depreciation on the equipment to produce the new board will be $1,520,000 per year, and fixed costs are $1,420,000 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).)

Required:

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).)

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Operating Cash Flow = Net Income + Depreciation = 8862607 + 1520000 = 10382607

Answer is 10382607.

Thanks.

Revised Income Statement Sales of New Model (1570*27200) 42704000 Loss of Sales of Old Model -4158000 Net Sales 38546000 Less Variable Costs (38546000*57%) 21971220 Fixed Costs 1420000 Depreciation 1520000 EBIT 13634780 Less Taxes 4772173 Net Income 8862607

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