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

$21976

Step-by-step 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`