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Given the soaring price of gasoline, Ford is considering introducing a new production line of gas-electric hybrid sedans.
Given the soaring price of gasoline, Ford is considering introducing a new production line of gas-electric hybrid sedans. The expected annual unit sales of the hybrid cars is 20,000; the price is $20,000 per car. Variable costs of production are $8,000 per car. The fixed overhead including salary of top executives is $80 million per year. However, the introduction of the hybrid sedan will decrease Ford's sales of regular sedans by 5,000 cars per year; the regular sedans have a unit price of $20,000, a unit variable cost of $12,000, and fixed costs of $250,000 per year. Depreciation costs of the production plant are $45,000 per year. The marginal tax rate is 40 percent. What is the incremental annual cash flow from operations?
