Miller Mfg. is analyzing a proposed project. The company expects to sell 11,000
ID: 2793884 • Letter: M
Question
Miller Mfg. is analyzing a proposed project. The company expects to sell 11,000 units, plus or minus 4 percent. The expected variable cost per unit is $8.00 and the expected fixed cost is $35,000. The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $33,000. The tax rate is 34 percent. The sale price is estimated at $15.00 a unit, give or take 4 percent. What is the net income under the worst case scenario? $-4,217.40 $-8,905.10 $-8,990.73 $-6,390.00 $-8,562.60
Explanation / Answer
Find the figures in worst case scenario:
Sales = 11000*(1-0.04) = 10560
Variable cost = 8*1.05 = 8.40
Fixed cost = 35000*1.05 = 36750
Selling price = 15*(1-0.04) = 14.40
Net income = (Sales - costs + depreciation) *(1-T)
Net income = (10560*(14.4-8.4) - 36750-33000) * (1-0.34) = -4217.40
Option A.