Precise Machinery is analyzing a proposed project. The company expects to sell 2

Question

Precise Machinery is analyzing a proposed project. The company expects to sell 2,100 units, give or take 5 percent. The expected variable cost per unit is $260 and the expected fixed costs are $589,000. Cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $129,000. The sales price is estimated at $750 per unit, give or take 2 percent. The tax rate is 35 percent. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $755. What is the operating cash flow based on this analysis?

Explanation / Answer

Sales = 2,100 x 750

VC = 2,100 x 260

OCF = Net Income + Depreciation = 331,150

Base case Sales $ 1,575,000 VC -$   546,000 FC -$   589,000 Depreciation -$   129,000 EBT $    311,000 Tax (35%) -$   108,850 Net Income $    202,150 OCF $    331,150

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