Question

P10-14 (similar to) : Question Help NPV. Huffman Systems has forecasted sales for its new home alarm systems to be 60,000 units per year at $37.00 per unit. The cost to produce each unit is expected to be about 42% of the sales price. The new product will have an additional $490,000 of fixed costs each year, and the manufacturing equipment will have an initial cost of $2,300,000 and will be depreciated over eight years (straight line). The company tax rate is 40%. What is the annual operating cash flow for the alarm systems if the projected sales and price per unit are constant over the next eight years? Should Huffman Systems add the new home alarm system to its set of products? The manufacturing equipment will be sold off at the end of eight years for $210,000, and the cost of capital for this project is 13%. What is the annual operating cash flow of the new alarm systems? $ (Round to the nearest dollar.)

Answer 1

Calculation of Annual operating Cash flau ist we will calculate Annual Depreciation Annual Equipment Cast Depreciatian Life in year $ 2,300,000 Annual Depreciation . $ 287,500 2,300,000 8

Dac. Now. Catch Number of Annual Operating Cash flow Prits Sold & 60.000 Units - Annual Sales (60.000 x $37 per unit) $2,220.000 Less = production Cast = ($ 93.400) (37 x 427 = 15.54 x60.000 units ) Jess: fixed Cost = ($ 490,000) Carning Befare Depreciation and taxes Jess Depreciation - Carning Befare lances Jess = lax (40% 510, 100) : $ 797,600 = ($ 287,500) = $ 510,100 = ($ 204,040) = $ 306.060 = $ 287.500 Earning After Care Add : Depreciation Dannual operating cost flaws - $593,560 de Manual operating Cashflow of the New System is $ 593.560