Carlyle chemicals is evaluating a new chemical compound used in the manufacture
ID: 2612279 • Letter: C
Question
Carlyle chemicals is evaluating a new chemical compound used in the manufacture of a wide range of consumer products. The firm is concerned that inflation in the cost of raw materials will have an adverse effect on the projects cash flow. Specifically, the firm expects the cost per unit (which is currently $0.85) will rise at a rate of 14% annual rate over the next three years. The per-unit selling price is currently $0.98 and this price is expected to rise at a meager 14% annual rate over the next three years. The per- unit price is currently 0.98 and this process is expected to rise at a meager 1 percent annual rate over the next three years. If Carlyle expects to sell 5.5, 7.5 and 8 million units for the next three years, respectively, what is your estimate of the gross profits to the firm? Based on these estimates, what recommendation would you offer the firms management with regard to this product? Round each unit price and unit cost to the nearest cent.
the gross profit or loss for year 1 is?
year 2?
year 3?
Explanation / Answer
Estimated Gross profit of the firm Year 1 Year 2 Year 3 Selling Price 0.98 1.1172 1.273608 1.45191312 Cost 0.85 0.969 1.10466 1.2593124 Profit 0.13 0.1482 0.168948 0.19260072 Units 5.5 7.5 8 Net profit in million 0.8151 1.26711 1.54080576