Question

Item 29Item 29The Creamery is analyzing a project with expected sales of 5,700 units, ±5 percent. The expected variable cost per unit is $168 and the expected fixed costs are $424,000. Cost estimates are considered accurate within a ±3 percent range. The depreciation expense is $156,000. The sales price is estimated at $339 per unit, ±5 percent. The tax rate is 21 percent. The company is conducting a sensitivity analysis with fixed costs of $425,000. What is the OCF given this analysis?

Answer 1

Answer:

$467,023

Explanation:

The operating cash flow is shown below:

= EBIT + Depreciation - Income tax expense

where,  

EBIT = (Selling price per unit - variable cost per unit) × number of units - fixed cost

= ($339 - $168) × 5,700 units - $425,000

= $549,700

Income tax expense = (Selling price per unit - variable cost per unit) × number of units - fixed cost × tax rate

=  ($339 - $168) × 5,700 units - $425,000 × 0.21

= $115,437

And, the depreciation expense would be

= Depreciation expense ×  tax rate

= $156,000 ×  0.21

= $32,760

Now put these values to the above formula  

So, the value would equal to

= $549,700 + $32,760 - $115,437

= $467,023