5,000,000 The Doctor is In 10 Note that all of my inputs/assumptions are up in the left-hand corner. In the calculations below, there are nothing but cell old in Year reciation 500,000 references. You want to get comfortable doing this. The large computer company you work for just purchased a leading headphone manufacturer. As part o 100,000 the merger, you have been put in charge of evaluating their manufacturing process. At the time of the I tried to make my income statement (P/L) simple. Sales - Cash Costs - Depreciation = Net. Pay some taxes and you have net after taxes. Add back depreciation and you have cash flow. merger, the headphone company was considering puchasing a new plastic mold for $5,090,000. Accountingrules say that this machineshould be depreciatedover 10 years to a zero salvagevalue. duction(headphones) 25.000 adphone 115 Note the tax shield from the loss. As an accountingprofessoronce told me as an undergrad, taxesmake the good times However, you anticipate selling the machine in Year 6 for $100,000 to make room for newer headphone worse and the bad times better. e per headphone models. 199 50,000 This new machine can produce up to 25,000 headphones per year. Your marketing team believes that th new headphonesshould sell for $199.00a piece, while your engineerstell you that they will cost $115.0 ital 1496 each to produce. You anticipate spending $50,000 per year on advertising the new headphones. Your fir has a tax rate of 35% and a cost of capital of 14% Cash flow Annual ProfitLoss and cash flow 1) Put together a mini-income statement for Years 1-6. In other words, start with sales and end up with net profit after taxes for each year. Machine Years 1-6 0$ (5,000,000) Sales 4,975,000 1$ 1,507,500 Costs 1,507,500 Production 2,875,000 507.500 the -50.000