The Quick Producers Co. is analyzing a proposed project. The company expects to sell 10,000 units, give or take 5 percent. The expected variable cost per unit is $6 and the expected fixed cost is $29,000. The fixed and variable cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $25,000. The tax rate is 34 percent. The sale price is estimated at $13 a unit, give or take 6 percent.

What is the earnings before interest and taxes under the base case scenario?
A) $10,560
B) $16,000
C) $22,440
D) $41,000
E) $66,000

Question

The Quick Producers Co. is analyzing a proposed project. The company expects to sell 10,000 units, give or take 5 percent. The expected variable cost per unit is $6 and the expected fixed cost is $29,000. The fixed and variable cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $25,000. The tax rate is 34 percent. The sale price is estimated at $13 a unit, give or take 6 percent.

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

What is the earnings before interest and taxes under the base case scenario?
A) $10,560
B) $16,000
C) $22,440
D) $41,000
E) $66,000

Quizplus · Accepted Answer

The base case scenario involves calculating the earnings before interest and taxes (EBIT) using the expected values. Revenue is calculated as 10,000 units * $13 = $130,000. Variable costs are 10,000 units * $6 = $60,000. Fixed costs are $29,000. Depreciation is $25,000. EBIT = Revenue - Variable Costs - Fixed Costs - Depreciation = $130,000 - $60,000 - $29,000 - $25,000 = $16,000.