You are analyzing a project and have developed the following estimates: unit sales = 1,320, price per unit = $79, variable cost per unit = $43, fixed costs = $24,900. The depreciation is $11,300 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 1,320 units sold, the increase in revenue is $1,320. After accounting for taxes (35%), the increase in operating cash flow is $1,320 * (1 - 0.35) = $858.

You Are Analyzing a Project and Have Developed the Following