Miller Mfg. is analyzing a proposed project. The company expects to sell 11,000
ID: 2612976 • Letter: M
Question
Miller Mfg. is analyzing a proposed project. The company expects to sell 11,000 units, give or take 4 percent. The expected variable cost per unit is $7.00 and the expected fixed cost is $35,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6 percent range. The depreciation expense is $29,000. The tax rate is 34 percent. The sale price is estimated at $13.00 a unit, give or take 3 percent.
What is the earnings before interest and taxes under the base case scenario?
Explanation / Answer
In case of best case scenario :
Sale units = 11000 (1+.04) = $ 11,440
selling price= 13 (1+.03) =$ 13.39
variable cost = 7 ( 1 -.06) = $ 6.58
fixed cost = 35000 (1-.06) =$ 32,900 (assuming other depreciation)
Earning before interest and tax =[ Contribution per unit *units sold ] -fixed cost -depreciation
= [(13.39-6.58)*11440]- 32,900-29,000
= [ 6.81*11440] - 61,900
=77,906.40-61,900
=$ 16,006.40