The Outpost currently sells short leather jackets for $369 each. The firm is considering selling long coats also. The long coats would sell for $719 each and the company expects to sell 820 a year. If the company decides to carry the long coat, management feels that the annual sales of the short jacket will decline from 1,120 to 1,040 units. Variable costs on the jacket are $228 and $435 on the long coat. The fixed costs for this project are $23,100, depreciation is $10,400 a year, and the tax rate is 34 percent. What is the projected operating cash flow for this project? a. $134,546 b. $131,264 c. $112,212 d. $131,062 e. $128,749

Question

Kiersten Cooke

Business

7 August, 20:53

The Outpost currently sells short leather jackets for $369 each. The firm is considering selling long coats also. The long coats would sell for $719 each and the company expects to sell 820 a year. If the company decides to carry the long coat, management feels that the annual sales of the short jacket will decline from 1,120 to 1,040 units. Variable costs on the jacket are $228 and $435 on the long coat. The fixed costs for this project are $23,100, depreciation is $10,400 a year, and the tax rate is 34 percent. What is the projected operating cash flow for this project? a. $134,546 b. $131,264 c. $112,212 d. $131,062 e. $128,749

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Answers (1)

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Kinley Stone · Answer 1

a. $134,546

Explanation:

proceeds from long coat

$719 x 820 = 589,580

variable cost

$435 x 820 = (356,700)

fixed cost (23,100)

Operating Income before Amortization and taxes

209780

- 10,400 depreciation

199380

67,789.2 income tax expense (tax rate 34% x 199380.2)

Net Operating Income 131,590.8

+ 10,400 Non monetary expense (depreciation)

-7444.8 Opportunity Cost

134,546

opportunity cost:

(1,040 - 1,120)

↓80 units of leather jackets

(369-228) x80 = (11,280) (1-tax) = (7444.8)