Problem:

Hi-As-A-Kite is considering making and selling custom kites in two sizes. The small kites would be priced at $10 and the large kites would be $24. The variable cost per unit is $5 and $11, respectively. Jill, the owner, feels that she can sell 2,600 of the small kites and 1,700 of the large kites each year. The fixed costs would be only $2,100 a year and the tax rate is 34 percent.

Required:

Question 1: What is the annual operating cash flow if the annual depreciation expense is $900?

• $20,064
• $22,086
• $22,848
• $23,309
• $23,604

Note: Please provide reasons to support your answer.