Miller Mfg. is analyzing a proposed project. The company expects to sell 8,000 u
ID: 2675588 • Letter: M
Question
Miller Mfg. is analyzing a proposed project. The company expects to sell 8,000 units, plus or minus 2 percent. The expected variable cost per unit is $11 and the expected fixed costs are $287,000. The fixed and variable cost estimates are considered 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 estimated at $64 a unit, give or take 3 percent. What is the operating cash flow under the best case scenario?A. $144,150
B. $148,475
C. $107,146
D. $168,630
E. $174,220
Explanation / Answer
Under Best case Scenario, Sale price pu will be highest, Qty Sold will be highest & Var cost & FC will be lowest. So SP pu = 64*1.03 = $65.92 Less VC pu = 11*0.95 = ($10.45) ------------------------------------ Cont pu = $55.47 No of unit sold = 8000*1.02 = 8,160 So Total Cont = 8,160*$55.47 = $452,635 Less FC (287000*0.95+ 68000) = $(340,650) ------------------------------------------------ EBIT= $111,985 Less Tax 32% = $(35,835) --------------------------------- PAT = $76,150 Add Back Dep = 68000 --------------------------- OCF = $144,150 ...........................Ans (a)