Stellar plastics is analyzing a proposed project with annual depreciation of $28,750 and a tax rate of 23 percent. The company expects to sell 16,500 ±3 percent. The expected variable cost per unit is $1.87, ±1 percent, and the expected fixed costs are $24,900, ±1 percent. The sales price is estimated at $7.99 a unit, ±2 percent. Required:
What is the operating cash flow for a sensitivity analysis using total fixed costs of $26,000?

$64,347

Explanation:

Operating cash flow can be calculated as follows

DATA

Selling Price = $7.99

Variable Cost = $1.87

Fixed Cost = $26,000

Units Sold = 16,500

Depreciation = 28,750

Solution

Sales (16,500 x 7.99)                      = $131,835

Variable expense (16,500 x 1.87)   = ($30,855)

Contribution                                    = $100,980

Fixed cost                                        = ($26,000)

depreciation                                    = ($28,750)

Income before tax                           = $46,230

Income tax  23%                           = ($10,632)

Net income                                      = $35,597

Depreciation                                    = $28,750

Operating cash flow                       = $64,347

Note: Depreciation will be added back because it is a non-cash item.

the answer is a.

by: nicholas dooley