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30 June, 07:00

HiLo Mfg. is analyzing a project with anticipated sales of 12,500 units, ±2 percent. The variable cost per unit is $13, ± 2 percent, and the expected fixed costs are $237,000, ±1 percent. The sales price is estimated at $69 a unit, ±3 percent. The depreciation expense is $68,000 and the tax rate is 22 percent. What is the earnings before interest and taxes under the base-case scenario?

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  1. 30 June, 07:22
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    The earnings before interest and taxes under the base-case scenario is $395,000

    Explanation:

    For computing the EBIT we have to use the equation which is shown below:

    EBIT = Sales revenue - variable cost - fixed cost - depreciation expense

    Where,

    Sales revenue = Number of units * Selling price per unit

    = 12,500 units * $69 per unit

    = $862,500

    Variable cost = Number of units * variable cost per unit

    = 12,500 units * $13 per unit

    = $162,500

    And, the other items values remain the same

    Now put these values to the above formula

    So, the value would equal to

    = $862,500 - $162,500 - $237,000 - $68,000

    = $395,000
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