Meld Music Company is considering the sale of a new sound board used in recordin
ID: 3248672 • 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 $30,761, and the company expects to sell 1,581 units per year. The company currently sells 2,073 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,840 units per year. The old board retails for $26,285. Variable costs are 48 percent of sales, depreciation on the equipment to produce the new board will be $1.15 million per year, and fixed costs are $1.18 million per year. If the tax rate is 32 percent, what is the annual OCF for the project?
Explanation / Answer
sales of new = 15801*30,761 = 486054561
lost sale of old = -26285*(2073-1840) = -6124405
variable cost = .48*(486054561-6124405) = 230366474.8
FC = 1180000
depreciation = 1150000
EBIT = 486054561-6124405-230366474.8-1180000-1150000 = $247233681.2
Tax = .32*247233681.2 = 79114777.98
Net income = 247233681.2-79114777.98 = $168118903.2
OCF = net income+depreciation = 168118903.2+1150000 = $169268903.2