Rolston Music Company is considering the sale of a new sound board used in recor
ID: 2743405 • Letter: R
Question
Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,200, and the company expects to sell 1,470 per year. The company currently sells 1,970 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,790 units per year. The old board retails for $22,100. Variable costs are 57 percent of sales, depreciation on the equipment to produce the new board will be $1,420,000 per year, and fixed costs are $1,320,000 per year.
If the tax rate is 35 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).)
Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,200, and the company expects to sell 1,470 per year. The company currently sells 1,970 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,790 units per year. The old board retails for $22,100. Variable costs are 57 percent of sales, depreciation on the equipment to produce the new board will be $1,420,000 per year, and fixed costs are $1,320,000 per year.
Explanation / Answer
The annual OCF for the project is $ 9291812
Sales of new (26200 * 1470) 38514000 Loss of old sales [ (1970 -1790) * 22100] 3978000 Net Sales Increase 34536000 Variabel cost 19685520 Contribution 14850480 Depreciation 1420000 Fixed Cost 1320000 EBIT 12110480 Tax (35%) 4238668 Net Income 7871812 Add: Depreciation 1420000 OCF $9291812Related Questions
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