Question

Grady Precision Measurement Tools has forecasted the following sales and costs for a new GPS system: annual sales of 40,000 units at $19 a unit, production costs at 40% of sales price, annual fixed costs for production at $150,000 and straight-line depreciation expense of $250,000per year. The company tax rate is 40%. What is the annual operating cash flow of the new GPS system

Answer 1

Answer:

$283,600

Explanation:

Sales revenue = 40,000 * $19 = $760,000

Production cost = $760,000 * 40% = $304,000

Total cost = Production cost + Annual fixed production cost = $304,000 + $150,000 = $454,000

Annual depreciation expense = $250,000

Income before tax = $760,000 - $454,000 - $250,000 = $56,000

Tax = $56,000 * 40% = $22,400

Operating cash flow = Income before tax + Depreciation - Tax = $56,000 + $250,000 - $22,400 = $283,600

Therefore, the annual operating cash flow of the new GPS system is $283,600.