1. Rolston Music Company is considering the sale of a new sound board used in re

Question

1. Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,900, and the company expects to sell 1,540 per year. The company currently sells 2,040 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,860 units per year. The old board retails for $22,800. Variable costs are 53 percent of sales, depreciation on the equipment to produce the new board will be $1,490,000 per year, and fixed costs are $1,390,000 per year.

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).)

1. Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,900, and the company expects to sell 1,540 per year. The company currently sells 2,040 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,860 units per year. The old board retails for $22,800. Variable costs are 53 percent of sales, depreciation on the equipment to produce the new board will be $1,490,000 per year, and fixed costs are $1,390,000 per year.

Explanation / Answer

The Cost of New Board=$ 26900   no of boards expected to sell 1540 so Revenue =26900*1540=41426000

The cost of old Board =$ 22800 no of boards to be sold after introduction of new board=1860

so the revenue on old board =22800*18060=$42408000

So Total Revenue on both the Boards=$ 41426000+$ 42408000=$ 83834000

Variable costs are 53% of sales=Total sales =83834000*53%=$44432020

Fixed costs are $ 1390000

  Depriciation=$ 1490,000

so the taxable income =83834000-44432020-1390000-1490000 (Rev-Vc-Fc-Dep)=$36521980

   Tax is 30% so the Tax liability=35621980*30%=$10956594

So Operating Cash Flow= Income after payment of Tax+ Depreciation

( 36521980-10956594 ) =25565386+1490000=26055386

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