Mercier's Is Analyzing a Proposed 3-Year Project Using Standard Sensitivity

question 28

Multiple Choice

Mercier's is analyzing a proposed 3-year project using standard sensitivity analysis.The company expects to sell 12,000 units,±4 percent.The expected variable cost per unit is $7 and the expected fixed costs are $36,000.The fixed and variable cost estimates are considered accurate within a ±6 percent range.The sales price is estimated at $14 a unit,±5 percent.The project requires an initial investment of $90,000 for equipment that will be depreciated using the straight-line method to zero over the project's life.The equipment can be sold for $39,000 at the end of the project.The project requires $11,200 in net working capital for the three years.The discount rate is 11 percent and tax rate is 34 percent
What is the net income under the pessimistic case scenario?

• A)-$566.02
• B)-$422.40
• C)-$278.78
• D)$3,554.50
• E)$5,385.60

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