Shue Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $23,600, and the company expects to sell 1,530 per year. The company currently sells 1,880 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,550 units per year. The old board retails for $22,000. Variable costs are 54 percent of sales, depreciation on the equipment to produce the new board will be $1,695,000 per year, and fixed costs are $2,975,000 per year. If the tax rate is 23 percent, what is the annual OCF for the project? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. OCF

Shue Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $23,600, and the company expects to sell 1,530 per year. The company currently sells 1,880 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,550 units per year. The old board retails for $22,000. Variable costs are 54 percent of sales, depreciation on the equipment to produce the new board will be $1,695,000 per year, and fixed costs are $2,975,000 per year. If the tax rate is 23 percent, what is the annual OCF for the project? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. OCF

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Smithson Mechanical Ltd. is considering replacing an existing hoist with a newer, more efficient piece of equipment. The existing hoist has a remaining useful life of 5 years. The new hoist costs CAD 46,000 to purchase and install and alsohas an estimated life of 5 years. It is a Class 5 asset with a CCA rate of 10.0% The company currently produces 8,500 units per year. The new hoist is expected to reduce variable costs by CAD 1.30 per unit and fixed costs by CAD 3,500 year. An increased investment in new working capital of CAD 4,500 will also be required to support the new machine. The existing hoist can currently be sold for CAD 15,000. At the end of 5 years, the existing hoist will have a salvage value of CAD 2,000. The new hoist can be sold for CAD 11,000 at the end of the 5-year period. The project’s RRR is 7.0% and its tax rate is 25.0%. The present value of the net initial cash flows of this project today is closest to: a) CAD -31,090. b) CAD -35,500. c) CAD -43,957. Net…
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