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 $26,400, and the company expects to sell 1,500 per year. The company currently sells 1,850 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,520 units per year. The old board retails for $22,300. Variable costs are 55 percent of sales, depreciation on the equipment to produce the new board will be $1,975,000 per year, and fixed costs are $2,400,000 per year.

If the tax rate is 38 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

sales of new = 1500*26,400 = 39600000

lost sale of old = -22300*(1850-1520) = -7359000

variable cost = .55*(39600000-7359000) = 17732550

FC = 2400000

depreciation = 1975000

EBIT =39600000-7359000-17732550-2400000-1975000 = $10133450

Tax = .38*10133450 = 3850711

Net income = 10133450-3850711 = $6282739

OCF = net income+depreciation = 6282739+1975000 = $8257739 ..............ans

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

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