Secure https/ truecld-4729641 Principles of Business Finance Homework: Chapter 1
ID: 2791658 • Letter: S
Question
Secure https/ truecld-4729641 Principles of Business Finance Homework: Chapter 12 Homework Score: 0 of 1 pt | 11 of 11 (11 complete) HW Score: 6742%, 742 of 11pts RP12-28 (similar to) Question Help (Calculating inflation and project cash flows) Carlyle Chemicals is evalaating a new chemical compound used in the manfacture of a wide range of consumer products. The firm is concemed that iellation in the cost of raw materials will have an adverse effect on the project's cash Sows Specifically, the fm expects that the cost pel (which arrentiy $085) wil rise at a rate of 15 percent annually over the next three years The perunt seling pree is armt, S101,and te price is expected to rbe at a meager 3 percent annual rate over the next three years Carlyle expects to sel 67.5 and 9 5 million units for the next theee years, respectively what is your estinate of the frm's gross profits? Based on this eslimate, what recommendation would you offer to the Sim's management with regard to tis product? The gross proft or (loss) or year 1 is $ 360,000 (Round to the nearest dollar) Thegross prom or(loss)for year 2 is S (Round to the nearestdolar) Enter your answer in the ahswer box and then click Check Answe 2Explanation / Answer
Price in year 1 = Current Price x (1 + 3%) = 1.01 x 1.03 = 1.04, Price in year 2 = 1.04 x 1.03 = 1.07, Price in year 3 = 1.07 x 1.03 = 1.10
Cost in year 1 = 0.85 x 1.15 = 0.98 and so on...
Gross Profit in year 1 = 6,000,000 x (1.04 - 0.98) = 376,800
Gross Profit in year 2 = 7,500,000 x (1.07 - 1.12) = -394,620
Gross Profit in year 3 = 9,000,000 x (1.10 - 1.29) = -1,701,805
1 2 3 Unit Sales 6,000,000 7,500,000 9,000,000 Price $ 1.04 $ 1.07 $ 1.10 Cost $ 0.98 $ 1.12 $ 1.29 Gross Profit 376,800 -394,620 -1,701,805