Southern Goods Is Analyzing a Proposed Project Using Standard Sensitivity

question 6

Multiple Choice

Southern Goods is analyzing a proposed project using standard sensitivity analysis.The company expects to sell 4,500 units,±11 percent.The expected variable cost per unit is $13 and the expected fixed costs are $12,000.Cost estimates are considered accurate within a ± 5 percent range.The depreciation expense is $5,000.The sale price is estimated at $22 a unit,±2 percent.
The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $18.Using this value,the earnings before interest and taxes will be:

• A)$10,500
• B)$6,000
• C)$2,500
• D)$5,500
• E)$8,500

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Definitions:

Dividend Policy

A dividend policy is a company's approach to distributing profits back to its shareholders, either in the form of cash dividends or stock dividends.

New Shares

These are additional shares of stock issued by a company, expanding the total number of shares on the market and diluting existing shareholders' ownership unless they purchase more.

Shareholders of Record

Individuals or entities that are officially registered and listed as the owners of shares in a company as of the record date.

Payable

Refers to the amount of money a company owes to its creditors or suppliers, typically recorded as a current liability on its balance sheet.