Miller Mfg. is analyzing a proposed project. The company expects to sell 15,600
ID: 2708401 • Letter: M
Question
Miller Mfg. is analyzing a proposed project. The company expects to sell 15,600 units, give or take 4 percent. The expected variable cost per unit is $20 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6 percent range. The depreciation expense is $31,000. The tax rate is 34 percent. The sale price is estimated at $24 a unit, give or take 4 percent.
What is the earnings before interest and taxes under the base case scenario?
$31,400
Explanation / Answer
For the base case you can ignore the probabilities since you can use the expected value for the ranges given.
Sales = $24 * 15,600 = $374,400
Variable cost = 20 * 15,600 = $312,000
Fixed cost is $36,000
Depreciation =$31,000
EBIT (earnings before int and tax) is sales less expenses above = $-4,600 (first answer)