Miller Mfg. is analyzing a proposed project. The company expects to sell 16,500

Question

Miller Mfg. is analyzing a proposed project. The company expects to sell 16,500 units, give or take 5 percent. The expected variable cost per unit is $23 and the expected fixed cost is $39,000. The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $34,000. The tax rate is 34 percent. The sale price is estimated at $27 a unit, give or take 5 percent.
What is the earnings before interest and taxes under the base case scenario?   $17,820   $27,000   $32,000   ?$7,000   $9,180   $17,820   $27,000   $32,000   ?$7,000   $9,180   $17,820   $27,000   $32,000   ?$7,000   $9,180

Explanation / Answer

earnings before interest and taxes under the base case scenario

Sale - Variable cost - fixed cost = (27 - 23) x 16500 - 39000 = $27000

Option B is correct

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