Question

You are analyzing a project and have developed the following estimates. The depreciation is $11,000 a year and the tax rate is 34 percent. What is the worst-case operating cash flow?
Base case Lower Bound Upper Bound
Unit sales 3,100 2500 3400
Sales price $19 $16 $22
Variable cost per unit $12 $14 $10
Fixed costs $8200 $8500 $7800

a. -$1,311
b. -$641
c. $274
d. $599
e. $1,206

Answer 1

Answer:

no option is correct, check the question to see if it was copied correctly and check the work to verify my answer

$1,430

Explanation:

worst case scenario:

2,500 units sold at $16 = $40,000

variable cost per unit $14 x 2,500 units = $35,000

contribution margin = $5,000

fixed costs = $8,500

depreciation expense = $11,000

cash flow = [(contribution margin - fixed costs - depreciation) x (1 - tax rate)] + depreciation

cash flow = [($5,000 - $8,500 - $11,000) x 0.66] + $11,000 = $1,430