Question

The projections for a new project show sales of 8,500 units, give or take 5 percent. The expected variable cost per unit is $28.62 and the expected fixed cost is $164,000. The fixed and variable cost estimates are considered accurate within a plus or minus 3 percent range. The depreciation expense is $62,000 and the tax rate is 35 percent. The sale price is estimated at $55 a unit, give or take 2 percent. The company bases its sensitivity analysis on the expected case scenario. What is the operating cash flow for a sensitivity analysis using total fixed costs of $170,000

Answer 1

Answer:

$56,950

Explanation:

We will calculate the operating cash flow as follow;

OCF = {[($55 - $28.62) 8,500 ] - $170,000} × (1 - 0.35) + ($62,000 × 0.35)

= {[$224,230] - $170,000} × 0.65 + ($21,700)

= $35,249.5 + $21,700

= $56,950

Therefore, the operating cash flow is $56,950