You are analyzing a project and have developed the following estimates: unit sales = 2,150, price per unit = $84, variable cost per unit = $57, fixed costs per year = $13,900.The depreciation is $8,300 a year and the tax rate is 35 percent.What effect would an increase of $1 in the selling price have on the operating cash flow?

Question

Quizplus · Accepted Answer

An increase of $1 in the selling price increases the contribution margin by $1 per unit. With 2,150 units sold, the increase in operating cash flow is 2,150 units * $1 * (1 - 0.35 tax rate) = $1,397.50.

You Are Analyzing a Project and Have Developed the Following