Miller Mfg. is analyzing a proposed project. The company expects to sell 8,000 units, plus or minus 2 percent. The expected variable cost per unit is $11 and the expected fixed costs are $287,000. The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range. The depreciation expense is $68,000. The tax rate is 32 percent. The sales price is estimated at $64 a unit, plus or minus 3 percent. What is the earnings before interest and taxes under the base case scenario?

Income before interest and taxes = $111,985.2

Explanation:

Giving the following information:

The company expects to sell 8,000 units, plus or minus 2 percent. The expected variable cost per unit is $11 and the expected fixed costs are $287,000.

The fixed and variable cost estimates are considered accurate within a plus or minus 5 percent range.

The depreciation expense is $68,000.

The tax rate is 32 percent.

The sales price is estimated at $64 a unit, plus or minus 3 percent.

The best-case scenario is the one where the maximum amount of units is sold at a higher price and with the lowest costs.

Best-case scenario:

Units sold = 8000*1.02 = 8160 units

Price = $64*1.03 = $65.92

Variable cost = 11*0.95 = $10.45

Fixed cost = 287000*0.95 = 272,650

Sales = 8160 * 65.92 = 537,907.2

Total variable cost = 85272

Total fixed cost = 272650

Net operating income = 179,985.2

Depreciation = 68000

Income before interest and taxes = $111,985.2

Income before interest and taxes = $111,985.2