Stellar Plastics is analyzing a proposed project. The company expects to sell 12

Question

Stellar Plastics is analyzing a proposed project. The company expects to sell 12,000 units, give or take 3 percent. The expected variable cost per unit is $6.00 and the expected fixed cost is $35,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6 percent range. The depreciation expense is $31,000. The tax rate is 34 percent. The sale price is estimated at $13.00 a unit, give or take 4 percent. What is the operating cash flow for a sensitivity analysis using total fixed costs of $32,000?

Explanation / Answer

OCF = [(12,000 x ($13.00 - $6.00)] - $32,000][1- .34] +($31,000 x .34)

OCF = [$84000-$32000][0.66] + $10540 =$44860

ANSWER : $44860 (THUMBS UP PLEASE)

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