Burke's Corner currently sells blue jeans and T-shirts. Management is considering adding fleece tops to its inventory to provide a cooler weather option. The tops would sell for $57 each with expected sales of 4,000 tops annually. By adding the fleece tops, management feels the firm will sell an additional 255 pairs of jeans at $67 a pair and 390 fewer T-shirts at $28 each.The variable cost per unit is $36 on the jeans, $16 on the T-shirts, and $31 on the fleece tops. With the new item, the depreciation expense is $33,000 a year and the fixed costs are $76,000 annually. The tax rate is 35 percent. What is the project's operating cash flow?

Respuesta :

Answer:

Project's operating cash flow = $31,846.25

Explanation:

Value derived from Selling of Fleece Tops

Sales = (4,000*$57) = $228000

Variable Cost (4,000*$31) = $124000

Total Value from Fleece Tops = $228000 - $124000 = $104,000

Value derived from Sales of Additional Jeans

Sales (255*$67) = $17085

Variable Cost (255*$36) = $9180

Total Value from Fleece Tops = $17085 - $9180 = $7905

Value Lost from Decline in Sales of T-Shirts

Sales (-390*$28) = -$10920

Variable Cost (-390*$16) = -$6240

Total Value from Fleece Tops = -$10920 - (-$6240) = -$10920 + $6240 = -$4680

Projects Operating Cash Flow = [($104,000 + $7905 - $4680) - $76,000]*(1-0.35) + $33,000 * 0.35

Projects Operating Cash Flow = ($31225 * 0.65) + ($33,000 * 0.35)

Projects Operating Cash Flow = $20296.25 + $11550

Projects Operating Cash Flow = $31,846.25