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6 August, 00:40

Miller Mfg. is analyzing a proposed project. The company expects to sell 8,000 units, plus or minus 2 percent. The expected variable cost per unit is $11 and the expected fixed costs are $287,000. The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $68,000. The tax rate is 32 percent. The sales price is estimated at $64 a unit, plus or minus 3 percent. What is the earnings before interest and taxes under the base case scenario?

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  1. 6 August, 00:48
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    Income before interest and taxes = $111,985.2
  2. 6 August, 00:49
    0
    Income before interest and taxes = $111,985.2

    Explanation:

    Giving the following information:

    The company expects to sell 8,000 units, plus or minus 2 percent. The expected variable cost per unit is $11 and the expected fixed costs are $287,000.

    The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range.

    The depreciation expense is $68,000.

    The tax rate is 32 percent.

    The sales price is estimated at $64 a unit, plus or minus 3 percent.

    The best-case scenario is the one where the maximum amount of units is sold at a higher price and with the lowest costs.

    Best-case scenario:

    Units sold = 8000*1.02 = 8160 units

    Price = $64*1.03 = $65.92

    Variable cost = 11*0.95 = $10.45

    Fixed cost = 287000*0.95 = 272,650

    Sales = 8160 * 65.92 = 537,907.2

    Total variable cost = 85272

    Total fixed cost = 272650

    Net operating income = 179,985.2

    Depreciation = 68000

    Income before interest and taxes = $111,985.2
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