Question

MC Qu. 7-A3 What is the operating cash flow for a sensitivity analysis using...

Stellar Plastics is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4 percent. The expected variable cost per unit is $7.00 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $32,000. The tax rate is 34 percent. The sale price is estimated at $13.00 a unit, give or take 3 percent.
What is the operating cash flow for a sensitivity analysis using total fixed costs of $32,000?

$37,280.00

$40,000.00

$8,000.00

$1,280.00

$5,280.00

Answer 1

Operating cash flow	Net income + Depreciation
Calculation of net income
Sales (12000*13)	$156,000
Less:Variable costs (12000*7)	$84,000
Fixed costs	$32,000
Depreciation expense	$32,000
Total costs	$148,000
Income before tax	$8,000
Less: Tax @ 34%	$2,720
Net Income	$5,280
Add: Depreciation expense	$32,000
Operating cash flow	$37,280
Therefore the operating cash flow would be $37,280