Question

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 22000; the price is $25000 per car. Variable cost of production are $10000 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 8000 cars per year; the regular sedans have a unit price of $20000, a unit variable cost of $12000, and fixed costs of $250000 per year. Depreciation costs of the production plant are $48000 per year. The marginal tax rate is 40 percent. What is the incremental annual cash flow