Problem:
The Can-Do Co. is analyzing a propsed 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 costs estimates are considered accurate within a plus or minus 6% range. The depreciation expense is $ 30,000. The tax rate is 34%. The sales price is estimated at $14 a unit, give or take 5 %. The company bases its sensitivity analysis on the expected case scenario.
Required:
Question 1: What is the earnings before interest and taxes under the expected case scenario?
Question 2: What is the earnings before interest and taxes under the optimistic case scernario?
Question 3: What is the earnings before interest and taxes under the pessimistic case scernario?
Note: Provide support for your underlying principle.