2.Olin Transmissions, Inc., has the following estimates for its new gear assembl

Question

2.Olin Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1510 per unit; variable costs = $346 per unit; fixed costs = $4177540; quantity = 73552 units. Suppose the company believes all of its estimates are accurate only within +/-16 percent. What is the company's EBIT when it performs its worst-case scenario analysis? (Round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

Explanation / Answer

We have to calculate the EBIT for the worst case scenario i.e the company's estimates are accurate with a negative 16% adjustments.

So, the Quantity would be = 73552 - 16% = 61784 units

Price = 1510 - 16% = 1268.4 per unit

Variable costs = 346 + 16% = 401.36 per unit

Fixed cost = 4177540 + 16% = 4845946.4

Calculation of EBIT

Sales Revenue 61784 units x 1268.4 = 78366825.6

Less: variable costs 61784 units x 401.36 = 24797626.24

Less: Fixed costs 4845946.4

So, the EBIT = 48723253

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