Mercier's Is Analyzing a Proposed 4-Year Project with Expected Sales

question 49

Multiple Choice

Mercier's is analyzing a proposed 4-year project with expected sales of 26,500 units,±3 percent.The expected variable cost per unit is $10,and the expected fixed costs are $42,000.The fixed and variable cost estimates are considered accurate within a range of ±2 percent.The sales price is estimated at $19 a unit,±2 percent.The project requires an initial investment of $74,000 for equipment that will be depreciated using the straight-line method to zero over the project's life.The equipment can be sold for $20,000 at the end of the project.The project requires $11,200 in net working capital.The discount rate is 14 percent,and the tax rate is 35 percent.What is the earnings before interest and taxes estimate under the expected case scenario?

• A)$178,000
• B)$204,000
• C)$136,000
• D)$248,000
• E)$154,000

---

Definitions:

Independent Variable

A variable that is manipulated in an experiment to see its effect on a dependent variable.

Observational Group

A group in a study that is exposed to the variable under investigation for observational purposes without receiving the experimental treatment.

Independent Variable

In experimental research, the variable that is manipulated by the researcher to observe its effect on the dependent variable.

Dependent Variable

A variable in research that is expected to change as a result of manipulations in the independent variable, used to measure the effect of those manipulations.