Question

1. Miller Mfg. is analyzing a proposed project. The company expects to sell 8.000 units, plus or minus 4 percent riable cost per unit is $11 and the ex pected fixed costs are $290,000. The fixed and variable cost estimates are considered va accurate within a plus or minus 5 percent range. The depreciation expense is $68,000,)The tax rate is 32 percent. The sales price is anit, give or take 3 percent. What is the operating cash fow under the best case scenario?

Answer 1

Operating Cash Flow under Best Case Scenario

Sales units = 8,320 Units (8,000 Units x 104%)

Selling Price per unit = $65.92 per unit ($64 x 103%)

Variable cost per unit = $10.45 per unit ($11 x 95%)

Fixed Costs = $275,500 ($290,000 x 95%)

Annual Operating Cash Flow = [(Sales – Variable Costs – Fixed Costs) x (1 – Tax Rate)] + [Depreciation x Tax Rate]

= [{(8,320 x $65.92) – (8,320 x $10.45) - $275,500} x (1 – 0.32)] + [$68,000 x 0.32]

= [($5,48,454.40 - $86,944 - $2,75,500) x 0.68] + [$68,000 x 0.32]

= $1,26,487.07 + $21,760.00

= $1,48,247.07

“Hence, The Operating Cash Flow under Best Case Scenario = $1,48,247.07”