question archive Wilson's Leather Goods currently sells short leather jackets for $199 each
Wilson's Leather Goods currently sells short leather jackets for $199 each
Subject:FinancePrice:2.87 Bought7
Wilson's Leather Goods currently sells short leather jackets for $199 each. They are considering selling long coats also. The coat would sell for $399 each and the company expects to sell 1,200 a year. If they carry the long coat, management feels that their sales of the short jacket will decline by 300 units. Variable costs on the jacket are $99 each and $270 each on the long coat. The incremental annual fixed costs related to the long coat are $80,000 and the incremental annual depreciation related to the long coat is $15,000. The tax rate is 34 percent. What is the projected operating cash flow for this project?
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| Answer | ||
|
Relevant contribution |
124800 | 1200*(399-270)-(300-0)*(199-99) |
| Less: Fixed costs | 80000 | |
| Less: Depreciation | 15000 | |
| Profit before tax | 29800 | |
| Less: Tax @34% | 10132 | |
| Net income | 19668 | |
| Add: Depreciation | 15000 | |
| Operating cash flows | 34668 | |
Therefor,
| Operating cash flows | $ 34668 |
