Question

Cusic Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $24,600, and the company expects to sell 1,630 per year. The company currently sells 1,980 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,650 units per year. The old board retails for $23,000. Variable costs are 52 percent of sales, depreciation on the equipment to produce the new board will be $1,095,000 per year, and fixed costs are $3,225,000 per year. If the tax rate is 23 percent, what is the annual OCF for the project? (Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.)

Answer 1

OCF

$ 9,783,557

Net revenue from new board		14927040.00
Sales of new board	40098000.00
Less: Variable costs	20850960.00
Fixed cost	3225000.00
Depreciation	1095000.00
Less: Revenue lost from old board		3643200.00
Sales	7590000.00
Less: Variable costs	3946800.00
Net Profit before tax		11283840.00
Less: Tax		2595283.2
Net Income		8688556.80
Add:Depreciation		1095000
OCF		9783556.80

Workings