Carrolton, Inc

question 111

Essay

Carrolton, Inc. currently sells widgets for $80 per unit. The variable cost is $30 per unit and total fixed costs equal $240,000 per year. Sales are currently 20,000 units annually.
The company is considering a 20% drop in selling price that they believe will raise units sold by 20%. Assuming all costs stay the same, what is the impact on income if they make this change?

---

Definitions:

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows, used in capital budgeting to assess the profitability of investments or projects.

Initial Cost

Initial cost refers to the total amount of expenses incurred when acquiring a new asset or starting a new project, including purchase price and any additional costs necessary to get the asset into use.

Equipment

Physical assets used in the operation of a business, particularly in the production, maintenance, or logistics processes.

Profitability Index

A financial metric used to evaluate the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment.