Huffman Systems has forecas be 63,000 units per year at $38.50 per unit. The cos

Question

Huffman Systems has forecas be 63,000 units per year at $38.50 per unit. The cost to produce each unit is expected to be 42% of the sales price. The new product will have an additional $494,000 fixed costs each year, and the manufacturing equipment will have an initial cost of $2,400,000 and will be depreciated over eight years on a straight line basis. The company has a tax rate of 40% What is the annual operating cash flow for the alarm systems if the projected sales and price per unit are constant of the next eight years? ted sales for its new home alarm systems to

Explanation / Answer

Revenue = Number of units sold per year * Cost of one unit = 63,000 * $38.50 = 2425500$

Cost of producing units = 42% of the Revenue = 42/100 * 2425500 = 1018710$

Fixed Costs = $494000

Manufacturing equipment cost = ($2,400,000)/8 [ since the depreciation is linear] = $300,000

EBIT = Revenue - Cost of production - fixed costs - manufacturing equipment costs = $612,790

Amount of Tax = 40% of EBIT = 40/100 * 612790 = 245116

Net income = EBIT - Tax Amount = $367,674

Adding back the depreciation for annual operating cashflow = $367,674 + $300,000 = $667,674

Hence the final answer is $667,674

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