Ralston Music Company is considering the sale of a new sound board used in recor

Question

Ralston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $27,400, and the company expects to sell 1,590 per year. The company currently sells 2,090 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,910 units per year. The old board retails for $23,300. Variable costs are 53 percent of sales, depreciation on the equipment to produce the new board will be $1,540,000 per year, and fixed costs are $1,440,000 per year. Required: If the tax rate is 30 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

Sales $ 39,372,000 (27400*1590-180*23300) Less: Costs $ 22,307,160 39372000*53%+1440000 Dereciation $    1,540,000 EBIT $ 15,524,840 Less: Tax @30% $    4,657,452 Net income $ 10,867,388 Add: Depreciation $    1,540,000 Operating cash flows for year (OCF) $ 12,407,388

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