A fimis examing a nine-year project in which a fixed asset is purchased for $540 and is depreciated straight line to zero over nine years

Finance Dec 22, 2020

A fimis examing a nine-year project in which a fixed asset is purchased for $540 and is depreciated straight line to zero over nine years. The firm knows the following with certainty price per unit = $12, variable cast per unit = 55, and fixed cost = 535. The firm estimates that quantity will be 20 units, but the actual quantity could be 15% higher or lower. The tax rate is 20% Find net income in the best-case scenario, $19 541 353 567 582 $36

Expert Solution

Net Income in best scenario = (Estimated Quantity * (1 + Higher Rate) * (Selling price - Variable Cost) - Fixed Cost - Depreciation) * (1 - Tax)

Net Income in best scenario = (20 * 1.15 * (12 - 5) - 35 - 60) * (1 - 20%)

Net Income in best scenario = (66) * (1 - 20%)

Net Income in best scenario = $53 Option C

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