Question

Cusic Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $24,000, and the company expects to sell 1,570 per year. The company currently sells 1,920 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,590 units per year. The old board retails for $22,400. Variable costs are 52 percent of sales, depreciation on the equipment to produce the new board will be $1,455,000 per year, and fixed costs are $3,075,000 per year. If the tax rate is 22 percent, what is the annual OCF for the project? (Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.) ok OCF t

Answer 1

Contribution margin per unit of new board
Sellig price per unit				24000
Less: VC per unit @52 % of sales				12480
CM per unit				11520
Multiply: Units sold				1570
Total contribution received from new board					18086400
Less: Contribution lost from old board
CM per unit (22400-52%)			10752
Multiply: unit salles lost (1920-1590)			330		3548160
Incremental contribution						14538240
Less: Fixed cost						3075000
Less: Depreciation						1455000
Earning before tax						10008240
Less: tax @ 22%						2201813
Earnings after tax						7806427
Add: Depreciation						1455000
Operating cash flows						9261427