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

question 81

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 earnings before interest and taxes estimate under the expected case scenario?

• A)$18,000
• B)$24,000
• C)$36,000
• D)$48,000
• E)$54,000

Know the characteristics and types of securities that companies with good credit ratings are likely to use.

Understand the process and implications of early redemption of bonds, including the computation of gain or loss.

Know how the issuance and authorization of bonds are conducted within a corporation.

Understand the influence of cognitive processes on health-related behaviors.

---

Definitions:

Crowding-out

is an economic theory suggesting that increased government spending leads to a reduction in private sector spending, potentially due to higher interest rates.

Full Employment

A situation in an economy when all available labor resources are being used in the most efficient way possible, typically characterized by the absence of cyclical unemployment.

Annual Deficit

The shortfall in a government's income compared to its spending in a given fiscal year.

George Bush

Refers to either George H.W. Bush, the 41st President of the United States (1989-1993), or his son George W. Bush, the 43rd President of the United States (2001-2009), each having made lasting impacts on American and international politics.