Musicville is considering the sale of a new sound board used in recording studio
ID: 2696564 • Letter: M
Question
Musicville 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.
If the tax rate is 40 percent, what is the annual OCF for the project
Required:If the tax rate is 40 percent, what is the annual OCF for the project
Explanation / Answer
with new machine sales = 1560*27100 + 1880*23000 = $85516000 contribution = 0.44*855160000 = 37627040 fixed costs = 1410000 Depreciation = 1510000 net profit = $34707040 tax = 40% SO OCF = 34707040*0.60 = $20824224
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