Huffman Systems has forecasted sales for its new home alarm systems to be 63,000

Question

Huffman Systems has forecasted sales for its new home alarm systems to
be 63,000 units per year at $38.50 per unit. The cost to produce each unit is
expected to be 42% of the sales price. The new product will have an
additional $494,000 fixed costs each year, and the manufacturing
equipment will have an initial cost of $2,400,000 and will be depreciated
over eight years on a straight line basis. The company has a tax rate of 40%.
What is the annual operating cash flow for the alarm systems if the
projected sales and price per unit are constant of the next eight years?

Explanation / Answer

Total Revenue = 63000*38.5 = 2425500

Cost of goods sold = Revenue*0.42 = 1018710

Fixed costs = 494000

Depreciation = 2400000/8 = 300000

Earnings before tax = 300000-494000-1018710-245500 = 612790

Taxes = 612790*0.4 = 245116

Net Income = 612790-245116 = 367674

Add back depreciation = 367674+300000= 667674

Operating cashflow = 667674

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

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