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 $27,300, and the company expects to sell 1,580 per year. The company currently sells 2,080 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,900 units per year. The old board retails for $23,200. Variable costs are 54 percent of sales, depreciation on the equipment to produce the new board will be $1,530,000 per year, and fixed costs are $1,430,000 per year.

If the tax rate is 34 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).)

If the tax rate is 34 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

Income Statement Particulars Amount Sales New Model=1580*27300 43134000.00 Old Model=1900*23200 44080000.00 Less: Variable costs (54%*sales) 47095560.00 Contribution 40118440.00 Less: Fixed Costs 1430000.00 Less: Depreciation 1530000.00 Earning Before Tax 37158440.00 Less: Tax@34% 12633869.60 Earning after tax 24524570.40 Operating Cash flows Earning Before Tax 37158440.00 Add: Depreciation 1530000.00 Operating Cash flows 38688440.00

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