The Can-Do Co.is analyzing a project with anticipated sales of 12,000 units,± 4 percent; variable costs per unit of $7,± 6 percent; and annual fixed costs of $36,000,± 6 percent.Annual depreciation is $29,600 and the tax rate is 21 percent.The sale price is $14.99 a unit,± 1 percent.What is the operating cash flow under the optimistic scenario?
A)$63,876
B)$54,309
C)$56,208
D)$59,311
E)$64,499

Question

Quizplus · Accepted Answer

The optimistic scenario is when all the variables are at their highest values. So, sales are 12,000 * 1.04 = 12,480 units, variable costs are $7 * 1.06 = $7.42 per unit, and fixed costs are $36,000 * 1.06 = $38,160. The sale price is $14.99 * 1.01 = $15.09 per unit.Operating cash flow is calculated as follows:Sales revenue = 12,480 units * $15.09 per unit = $188,431.20Variable costs = 12,480 units * $7.42 per unit = $92,438.40Fixed costs = $38,160Depreciation = $29,600EBIT = $188,431.20 - $92,438.40 - $38,160 - $29,600 = $28,232.80Taxes = $28,232.80 * 0.21 = $5,929.13Operating cash flow = $28,232.80 - $5,929.13 = $22,303.67