Question
In: Finance
ABC Computer, Inc. wants to develop and sell a new kind of computer. This new computer...
ABC Computer, Inc. wants to develop and sell a new kind of computer. This new computer is estimated to have a customer selling price of $24,600. ABC thinks they can find customers to buy 1,630 per year of this new computer. ABC now sells 1,980 units of its current computer model per year. If the new computer is introduced, sales of the current computer model will decline to 1,650 units annually. The current computer model sells for $23,000. Variable costs for both the old and new computer models are 52 percent of sales. ABC will need to buy equipment to produce the new computer and this will create an annual amount of depreciation of $1,095,000. In addition, there will be annual fixed costs of $3,225,000 related to the new computer. ABC has a tax rate of 23 percent. Calculate the amount of the annual operating cash flow for the new computer. (Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.
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Answer
| Annual Sales Units of New Computer (A) (Units) | 1630 |
| Selling Price of New Computer (B) | 24600 |
| Total Sales (C= B x A) | 40098000 |
| Variable Cost (D= 52% of C) | 20850960 |
| Contribution (E= C-D) | 19247040 |
| Less :- Depriciation (F) | 1095000 |
| Less:- Fixed Costs (G) | 3225000 |
| PBT (H= E-F-G) | 14927040 |
| Tax (I = H x 23%) | 3433219.2 |
| PAT (J = H - I) | 11493821 |
Therefore we have PAT of $ 11393821.
To get to our Operating Cash Flow we need to add Depriciation and Deduct the Loss of Profit beacuse of less sale of current computer model.
Let us understand the loss of Profit of old computer model
| Sales of Old Computer Before the Launch of New Model (A) | 1980 | Units |
| Sales of Old Computer After the Launch of New Model (B) | 1650 | Units |
| Loss of Sales Units (C=A-B) | 330 | |
| Sales Price Per Units (D) | 23000 | |
| Total Sales Value (E= C x D) | 7590000 | |
| Variable Cost (F = E x 52 %) | 3946800 | |
| Contribution (G = E -F) | 3643200 | |
| Tax (H = G* 23%) | 837936 | |
| Cash Flow Loss becasue of New Model (I = G - H) | 2805264 |
Now Operating annual Cash flow of the new computer = $ 11493821 + $ 1095000 - $ 2805264 = $ 9783557
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