Answer:
The answer is: an increase of $1,397.50
Explanation:
First we have to calculate the net income for the original sale price per unit of $84 and then subtract the depreciation expenses and taxes to calculate the operating cash flow:
total revenue (2,150 x $84) $180,600
cost of goods sold (2,150 x $57) ($122,550)
<u>SG&A, operating expenses ($13,900) </u>
net income $44,150
<u>depreciation expense ($8,300) </u>
EBIT $35,850
<u>taxes (35%) ($12,547.50) </u>
operating cash flow $23,302.50
Then we calculate the new net income for the second sale price per unit of $85 and then subtract the depreciation expenses and taxes to calculate the new operating cash flow:
total revenue (2,150 x $85) $182,750
cost of goods sold (2,150 x $57) ($122,550)
<u>SG&A, operating expenses ($13,900) </u>
net income $46,300
<u>depreciation expense ($8,300) </u>
EBIT B $38,000
<u>taxes (35%) ($13,300) </u>
operating cash flow B $24,700
An increase of $1 in the selling price will result in an increase of $1,397.50 on the operating cash flow.
