Question

In: Finance

A project has base-case earnings before interest and taxes of $36,408, fixed costs of $42,700, a...

A project has base-case earnings before interest and taxes of $36,408, fixed costs of $42,700, a selling price of $24 a unit, and a sales quantity of 22,000 units. All estimates are accurate within ±2 percent. Depreciation is $16,700. What is the base-case variable cost per unit?

Solutions

Expert Solution

Solution:

Given:

Base-Case Earnings Before Interest and Taxes (EBIT) of the Project = $36,408

Fixed Costs = $42,700

Selling Price Per Unit = $24

Sales Quantity = 22,000 units

Estimates Accuracy = ±2 percent.

Depreciation = $16,700

To Calculate:

The Base-Case Variable Cost Per Unit (VC).

Formula:

Base-Case Earnings Before Interest and Taxes (EBIT) = (Number of Units) × (Selling Price Per Unit - Variable Cost) - Fixed Cost – Depreciation

On putting the values in the formula, we get,

$ 36,408 = (22,000) × ($ 24 - Variable Cost) - $ 42,700 - $ 16,700

$ 36,408 = ($ 528,000 - 22,000 VC) - $ 59,400

$ 36,408 = $ 528,000 - $ 59,400 - 22,000 VC

$ 36,408 = $ 468,600 – 22,000 VC

22,000 VC = $ 468,600 - $ 36,408

22,000 VC = $ 432,192

Base-Case VC = $ 432,192 / 22,000

Base-Case Variable Cost = $ 19.64509 ≈ $ 19.65

The Base-Case Variable Cost Per Unit = $ 19.65

Ans: The Base-Case Variable Cost Per Unit = $ 19.65


Related Solutions

What are earnings before interest and taxes for 2000?
Use the following to answer questions 7-15: 1999 2000 Sales $2900 $3300 Cogs $2030 $2310 Interest $410 $420 Dividends $56 $79 Depreciation $290 $330 Cash $250 $150 Receiviables $242 $412 Current liabilities $900 $1100 Inventory $1015 $900 Long Term Debt $3200 $3100 Net Fixed Assets $6000 $5700 Tax Rate 34% 34%       7.   What are earnings before interest and taxes for 2000?             A) $112             B) $158             C) $580             D) $660             E)   $780          ...
Sales Revenue is $1,000,000, Earnings Before Interest and Taxes is $400,000, and Earnings After Interest and...
Sales Revenue is $1,000,000, Earnings Before Interest and Taxes is $400,000, and Earnings After Interest and Taxes is $300,000. Accounts Receivable is $50,000. The Average Collection Period is (assume a 365 day year):
SALES $25,000 COSTS OF GOODS $16,000 DEPRECIATION $3,000 EARNINGS BEFORE INTEREST AND TAXES $6,000 INTEREST PAID...
SALES $25,000 COSTS OF GOODS $16,000 DEPRECIATION $3,000 EARNINGS BEFORE INTEREST AND TAXES $6,000 INTEREST PAID $2,000 TAXABLE INCOME $4,000 TAXES (34%) $1,360 NET INCOME $2,640 (ADDITION TO) RETAINED EARNINGS $1,584 DIVIDENDS $1,056 CURRENT ASSET 2002 2003 CURRENT LIABILITIES 2002 2003 CASH $4,000 $3,000 ACCOUNTS PAYABLE $3,000 $2,500 ACCOUNTS RECEIVABLE $9,000 $11,000 NOTES PAYABLE $6,000 $6,416 INVESNTORY $5,000 $4,500 LONG TERM DEBT $15,000 $13,000 OWNERS EQUITY FIXED ASSETS COMMON STOCK $14,000 $16,500 NET FIXED ASSET(PLANT AND EQUIPMENT) $30,000 $31,500 RETAINED...
SALES $25,000 COSTS OF GOODS $16,000 DEPRECIATION $3,000 EARNINGS BEFORE INTEREST AND TAXES $6,000 INTEREST PAID...
SALES $25,000 COSTS OF GOODS $16,000 DEPRECIATION $3,000 EARNINGS BEFORE INTEREST AND TAXES $6,000 INTEREST PAID $2,000 TAXABLE INCOME $4,000 TAXES (34%) $1,360 NET INCOME $2,640 (ADDITION TO) RETAINED EARNINGS $1,584 DIVIDENDS $1,056 CURRENT ASSET 2002 2003 CURRENT LIABILITIES 2002 2003 CASH $4,000 $3,000 ACCOUNTS PAYABLE $3,000 $2,500 ACCOUNTS RECEIVABLE $9,000 $11,000 NOTES PAYABLE $6,000 $6,416 INVESNTORY $5,000 $4,500 LONG TERM DEBT $15,000 $13,000 OWNERS EQUITY FIXED ASSETS COMMON STOCK $14,000 $16,500 NET FIXED ASSET(PLANT AND EQUIPMENT) $30,000 $31,500 RETAINED...
  Earnings before depreciation, interest, and taxes              $1,600,000             Depreciation expense 
  Earnings before depreciation, interest, and taxes              $1,600,000             Depreciation expense                                                            $100,000             Tax rate                                                                                       40%             Interest expense                                                                      $10,000                       Common dividends paid                                                      $200,000             Number of shares of common stock outstanding                 $500,000 a. 1.79 b. 1.39 c. 3.20 d. 1.20
A firm has S600,000 earnings before depreciation, interest, taxes. The firm has a depreciation expense of...
A firm has S600,000 earnings before depreciation, interest, taxes. The firm has a depreciation expense of $100,000, and a tax rate of 35%? What is net cash flow from operations?
A firm’s Revenues equals $2,000,000, Earnings After Taxes equals $250,000, Earnings Before Interest and Taxes equals...
A firm’s Revenues equals $2,000,000, Earnings After Taxes equals $250,000, Earnings Before Interest and Taxes equals $400,000, and Interest payments equals $50,000. What is this firm’s Times Interest Earned? a. 5 b. 2 c. 8 d. need to know what its Taxes equal
A firm’s Revenues equals $2,000,000, Earnings After Taxes equals $250,000, Earnings Before Interest and Taxes equals...
A firm’s Revenues equals $2,000,000, Earnings After Taxes equals $250,000, Earnings Before Interest and Taxes equals $400,000, and Total Assets equals $5,000,000. What is this firm’s Profit Margin? a. 20% b. 12.5% c. 5% d. none of the above
A firm’s Revenues equals $2,000,000, Earnings After Taxes equals $250,000, Earnings Before Interest and Taxes equals...
A firm’s Revenues equals $2,000,000, Earnings After Taxes equals $250,000, Earnings Before Interest and Taxes equals $400,000, and Interest payments equals $50,000. What is this firm’s Times Interest Earned? a. 5 b. 2 c. 8 d. need to know what its Taxes equal
A firm’s Revenues equals $2,000,000, Earnings After Taxes equals $250,000, Earnings Before Interest and Taxes equals...
A firm’s Revenues equals $2,000,000, Earnings After Taxes equals $250,000, Earnings Before Interest and Taxes equals $400,000, Total Assets equals $5,000,000, and Total Debt equals $3,000,000. What is this firm’s Return on Equity?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT