Vernon-Nelson Chemicals is planning to release a new brand of insecticide, Bee-S
ID: 2645692 • Letter: V
Question
Vernon-Nelson Chemicals is planning to release a new brand of insecticide, Bee-Safe, that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost $20 million, and there will be an additional $2 million cost to reconfigure existing plant The equipment is expected to have a lifetime of eight years and will be depreciated by the straight-line method over its lifetime The firm expects that they should be able to sell 1,500,000 gallons per year at a price of $52 per gallon It will take $.18 per gallon to manufacture and support the product If Vernon-Nelson s marginal tax rate is 40%. what are the incremental earnings in year 3 of this project?Explanation / Answer
No of Units sold
1,500,000
Selling Price per unit
52
Less Cost per unit
38
Cash Profit Per unit
14
New Equipment
EBITDA
$ 21,000,000.00
(1,5000,000*14)
Less Depreciation
$ 2,500,000.00
(20000000/8)
Earning before Tax
$ 18,500,000.00
Less Tax @ 40 %
$ 7,400,000.00
Incremental Earning
$ 11,100,000.00
No of Units sold
1,500,000
Selling Price per unit
52
Less Cost per unit
38
Cash Profit Per unit
14
New Equipment
EBITDA
$ 21,000,000.00
(1,5000,000*14)
Less Depreciation
$ 2,500,000.00
(20000000/8)
Earning before Tax
$ 18,500,000.00
Less Tax @ 40 %
$ 7,400,000.00
Incremental Earning
$ 11,100,000.00
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