Assume a project has a sales quantity of 7,400 units, ±6 percent and a sales price of $59 a unit, ±1 percent. The expected variable cost per unit is $13, ±3 percent, and the expected fixed costs are $214,000, ±2 percent. The depreciation expense is $63,000 and the tax rate is 23 percent. What is the operating cash flow under the best-case scenario?
A) $136,759
B) $118,470
C) $145,705
D) $134,208
E) $124,220

Question

Quizplus · Accepted Answer

The best-case scenario is when the sales quantity is at its highest (7,400 units + 6% = 7,844 units), the sales price is at its highest ($59 + 1% = $59.59), the variable cost per unit is at its lowest ($13 - 3% = $12.57), and the fixed costs are at their lowest ($214,000 - 2% = $210,588).Operating cash flow = (Sales quantity * Sales price) - (Variable cost per unit * Sales quantity) - Fixed costs - Depreciation expense + (Depreciation expense * Tax rate)= (7,844 * $59.59) - ($12.57 * 7,844) - $210,588 - $63,000 + ($63,000 * 0.23)= $136,759

Assume a Project Has a Sales Quantity of 7,400 Units