Operating cash flow. Huffman Systems has forecasted sales for its new home alarm

Question

Operating cash flow. Huffman Systems has forecasted sales for its new home alarm systems to be 65,000 units per year at $42.00 per unit. The cost to produce each unit is expected bout 42% of the sales price. The new product will have an additional $490,000 of fixed costs each year, and the manufacturing equipment will have an initial cost of $3,100,000 and will be depreciated over eight years straight line The company tax rate is 40% What is the annual operating cash flow or the alarm systems if the projected sales and price per unit are constant over the next eight years? What is the annual operating cash flow for the alarm systems? $ (Round to the nearest dollar) oun Enter your answer in the answer box ouna

Explanation / Answer

Number of units sold = 65,000

Price per unit = $42

Revenue = number of units*price per unit = 65,000*42 = 2730000

Variable cost = 42% sales price per unit, so total variable cost will be 42% of revenue

Total Variable cost = 0.42*2730000 = 1146600

Fixed cost = 490,000

Equipment is depreciated for eight years using straight line depreciation method

Depreciation = Initial cost*(1/8)

Initial cost = 3,100,000

So, depreciation = 3100000/8 = 387500

tax = 40%

Operating Cash flow = (Revenue - Variable cost - fixed cost - depreciation)*(1-tax) + depreciation

Operating Cash flow = (2730000-1146600-490000-387500)*(1-0.4) + 387500 = 811,040

So annual oprating cash flow = $811,040

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