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XYZ sells medical equipment and is considering the digital thermometer project, which would involve selling digital thermometers for 1 year. The firm expects sales of

XYZ sells medical equipment and is considering the digital thermometer project, which would involve selling digital thermometers for 1 year. The firm expects sales of digital thermometers to be $192,000 and associated costs from batteries, electronics, plastic, etc. used to make digital thermometers to be $87,000. The firm believes that sales of analog scanners, a type of device that is currently offered by the firm, would be $41,000 less with the addition of digital thermometers, and that costs associated with analog scanners would be $38,000 less with the addition of digital thermometers. Finally, XYZ believes that selling digital thermometers would increase traffic to its web site, which would increase expected sales of glucose pumps, scales, and other items by $27,000 more than it would be without the addition of digital thermometers, and increase costs of glucose pumps, scales, and other items by $14,000 more than it would be without the addition of digital thermometers. What is the operating cash flow (OCF) for year 1 that XYZ should use to analyze the digital thermometer project? The tax rate is 35 percent and the cost of capital is 8.61 percent. Relevant depreciation is expected to be $17,000.

a.

$80,700 (plus or minus $10)

b.

$74,200 (plus or minus $10)

c.

$84,600 (plus or minus $10)

d.

$63,800 (plus or minus $10)

e.

None of the above is within $10 of the correct answer

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