Question

A company is analyzing a proposed project. The company expects to sell 14,600 units, plus or minus 2 percent. The expected variable cost per unit is $16 and the expected fixed cost is $36,000. The fixed and variable cost estimates are considered accurate within a plus or minus 2 percent range. The depreciation expense is $33,000. The tax rate is 34 percent. The sale price is estimated at $20 a unit, give or take 2 percent. What is the net income under the worst-case scenario

Answer 1

Answer:

$21976

Explanation:

When estimating the net income under the worst-case scenario, the fixed and variable cost estimates are done using positive percentage(100% + 2% = 1.02) while other cost using negative percent range (100% - 2%).

The net income under worst scenario is:

$Net \ income_{worst}=[[(\ 24*0.98-\ 16*1.02)*(14600*0.98)]-(\ 36000*1.02)-\ 33000][1-0.34]=\ 33297.6*0.66=\ 21976$