Asked by
Amanda Chester
on Dec 09, 2024
Verified
A project has projected sales of 25,600 units with a selling price of $4.95 each. Annual fixed costs are $31,000 with variable costs of $2.18 per unit. The project has a three-year life and requires an initial investment of $62,900 for equipment. The equipment will be depreciated straight-line to zero over three years. The sales price has a plus-minus range of 10% while the cost estimates are expected to vary within a 5% range. The quantity has a plus-minus range of 8%. The tax rate is 34%. Under the best-case scenario, what is the operating cash flow?
A) $22,268
B) $28,292
C) $42,867
D) $43,235
E) $49,259
Operating Cash Flow
The cash generated from the normal operations of a business, excluding financing and investing activities.
Variable Costs
Charges that adjust in direct proportion to the amount of goods produced or sold.
Fixed Costs
Costs that do not change with the level of output or sales, such as rent, salaries, and loan payments.
- Undertake sensitivity analysis to examine the outcomes of modifications in essential variables.
- Ascertain the variables impacting operating cash flow (OCF) and perform OCF calculations in diverse conditions.
Verified Answer
JZ
Learning Objectives
- Undertake sensitivity analysis to examine the outcomes of modifications in essential variables.
- Ascertain the variables impacting operating cash flow (OCF) and perform OCF calculations in diverse conditions.