CanDo SA is analyzing a proposed project.The company expects to sell 12,000 units, give or take 4%.The expected variable cost per unit is €7 and the expected ﬁxed cost is €36,000.The ﬁxed and
Variable cost estimates are considered accurate within a plus or minus 6% range.The depreciation
Expense is €30,000.The tax rate is 34%.The sale price is estimated at €14 a unit, give or take 5%.
The company bases its sensitivity analysis on the expected case scenario.What is the earnings
Before interest and taxes under the optimistic case scenario?

Question

Quizplus · Accepted Answer

In the optimistic scenario, sales volume, sales price, and costs would all be at their most favorable. Sales volume would be 12,000 units + 4% = 12,480 units. The sale price per unit would be €14 + 5% = €14.70. The variable cost per unit would be €7 - 6% = €6.58. The fixed cost would be €36,000 - 6% = €33,840. Revenue = 12,480 units * €14.70 = €183,456Variable Costs = 12,480 units * €6.58 = €82,118.40Fixed Costs = €33,840Depreciation = €30,000Earnings Before Interest and Taxes (EBIT) = Revenue - Variable Costs - Fixed Costs - DepreciationEBIT = €183,456 - €82,118.40 - €33,840 - €30,000 = €37,497.60

CanDo SA Is Analyzing a Proposed Project