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 $27,100, and the company expects to sell 1,560 per year. The company currently sells 2,060 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,880 units per year. The old board retails for $23,000. Variable costs are 56 percent of sales, depreciation on the equipment to produce the new board will be $1,510,000 per year, and fixed costs are $1,410,000 per year. Required: If the tax rate is 40 percent, what is the annual OCF for the project? (

Explanation / Answer

Decreament in the old revenue = (2060-1880)*2300

Net new Revenue = 27100*1560-(2060-1880)*23000 = 38136000

Total valiable cost = .56*38136000 = 21356160

New Profit = (38136000-21356160-1410000-1510000)*(1-.4) = 8315904

OCF = 8315904+1510000 = $9825904

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

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