The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,0

Question

The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario.

What is the earnings before interest and taxes under the optimistic case scenario? The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario.

What is the earnings before interest and taxes under the optimistic case scenario? The Can-Do Co. is analyzing a proposed project. The company expects to sell 12,000 units, give or take 4%. The expected variable cost per unit is $7 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $30,000. The tax rate is 34%. The sale price is estimated at $14 a unit, give or take 5%. The company bases its sensitivity analysis on the expected case scenario.

What is the earnings before interest and taxes under the optimistic case scenario?

Explanation / Answer

Under optimistic scenario, number of units sold = 12,000 * (1 + 4%) = 12,480 units

Sales price under optimistic scenario = $14 * (1 + 5%) = $14.7

Revenue (optimitisc scenario) - 12,480 * $14.7 = $183,456

Variable Cost per unit = $7

Total variable Cost = $7 * 12,480 = $87,360

Total fixed cost = $36,000

Depreciation expense = $30,000

EBIT = Revenue - Variable Expense - Fixed Cost - Depreciation

EBIT = 183,456 - 87,360 -36,000 -30,000 = $30,096

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