Question

oles Finance Assignments CH 11 Homework CH 11 Homework L Send to Gradebook <Prev Next Question 4 /1 View Policies Current Attempt in Progress Given the soaring price of gasoline, Ford is considering introducing a new production line of gas-electric hybrid sedans. The expected annual unit sales of the hybrid cars is 36,000; the price is $22.000 per car. Variable costs of production are $12,000 per car. The fixed overhead including salary of top executives is $80 million per year. However, the introduction of the hybrid sedan will decrease Ford's sales of regular sedans by 12,000 cars per year; the regular sedans have a unit price of $20,000, a unit variable cost of $12.000, and fxed costs of $250,000 per year. Depreciation costs of the production plant are $50,000 per year. The marginal tax rate is 40 percent. What is the incremental annual cash flow from operations? Incremental annual cash flow from operations $ eTextbook and Media Attempts: 0 of 3 used Submit Answer Save for Later <Prev Next Send to Gradebook Next Previous MacBook Air & 5 7 dele P T Y K H G

Answer 1

C D E F G Sales = 36,000 * $22,000 = $792,000,000 Total operating expense = (36,000 * $12,000) + ($20,000 - $12,000) * $12,000 = $528,000,000. 7 Less: 8 9 Less: 10 11 less: 12 13 Add: Sales Variable cost Gross profit Depreciation Earnings after depreciation Tax @40% Earnings after tax Depreciation Incremental annual cash flow 792000000 528000000 264000000 50000 263950000 105580000 158370000 50000 158420000 14 15 Incremental annual cash flow = $158,420,000

Excel formula:

Sales = 36,000 * $22,000 = $792,000,000 Total operating expense = (36,000 * $12,000) + ($20,000 - $12,000) * $12,000 = $528,000,000. 7 Less: 9 Less: 10 11 less: 12 13 Add: 14 15 Sales Variable cost Gross profit Depreciation Earnings after depreciation Tax @40% Earnings after tax Depreciation Incremental annual cash flow 792000000 528000000 =C6-C7 50000 =C8-C9 =C10*0.4 =C10-C11 50000 =C12+C13 Incremental annual cash flow = $158,420,000