Meld Music Company is considering the sale of a new sound board used in recordin
ID: 2686809 • Letter: M
Question
Meld Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $33,235, and the company expects to sell 1,593 units per year. The company currently sells 2,077 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,872 units per year. The old board retails for $34,419. Variable costs are 46 percent of sales, depreciation on the equipment to produce the new board will be $1.25 million per year, and fixed costs are $1.23 million per year. If the tax rate is 39 percent, what is the annual OCF for the project?Explanation / Answer
COnt per New Borad = 33235*(1-46%) = $17,947 SO Total COnt from New Board = 1593* $17,947 = $28,589,412 ....(a) Cont of Old Board = 33419*(1-46%) = $18,046 Total Cont from Old board = 1872* $18,046 = $33,782,112 ...(b) SO Total Cont = a+b = $62,371,524 Less Dep 1250,000 Less FC 1230,000 ----------------------- PBT $59,891,524 Less Tax 39% $(23,357,694) ------------------------------- PAT $36,533,829 Add Back Dep 1250,000 ----------------------- OCF $37,783,829