Question

Burke's Corner currently sells blue jeans and T-shirts. Management is considering adding fleece tops to its inventory to provide a cooler weather option. The tops would sell for $53 each with expected sales of 4,300 tops annually. By adding the fleece tops, management feels the firm will sell an additional 285 pairs of jeans at $65 a pair and 420 fewer T-shirts at $26 each. The variable cost per unit is $36 on the jeans, $16 on the T-shirts, and $31 on the fleece tops. With the new item, the depreciation expense is $33,000 a year and the fixed costs are $76,000 annually. The tax rate is 35 percent. What is the project's operating cash flow?

Mannix Corporation stock currently sells for $75 per share. The market requires a return of 15 percent on the firm's stock.

  

If the company maintains a constant 7 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

Answer 1

Answer to first question:- Project's operating cash flow = $26282

Explanation:-

Parameter	Price or cost Per Unit ($)	Nos. of Unit	Total ($)
	P	N	P x N
Revenues from Fleece tops	53	4,300	227,900
[+] Revenues from Jeans	65	285	18,525
[-] Revenue lost from T shirts	26	420	10,920
[-] Variable cost of Fleece tops	31	4,300	133,300
[-] Variable cost of Jeans	36	285	10,260
[+] Variable cost saved on T Shirts	16	420	6,720
[-] Fixed costs			76,000
[-] Annual Depreciation			33,000
Operating income			(10,335)
[-] Taxes @ 35%			(3,617)
NOPAT			(6,718)
[+] Depreciation			33,000
Operating cash flows			26,282

OR

= [Net Revenue from fleece top + Net Revenue from jeans - Net Revenue lost from T-shirt - fixed cost] x (1-Tax Rate) + [Depreciation x Tax Rate]

=[4300 x (53-31) + 285 x (65-36) - 420 (26-16) -76000] x (1-0.35) + [33000 x 0.35]

= $26,282

Answer for second question:-