Reference no: EM132918570
Problem 1: A company is considering the sale of a new product. This product will sell for $50 per unit, and the production level will be 1000 units. The company currently sells $12,000 of its existing products per year. If the company decides to go ahead with the new product, it is expected that sales of the current product will fall to $10,000 per year. Variable costs are 10% of sales, and fixed costs are $1000. Depreciation on the equipment to produce the new product will be $2,200 per year. If the corporate tax rate is 30%, calculate EBIT, net income and OCF for this project.
A. EBIT = $52,000; Net Income = $36,400; OCF = $38,600
B. EBIT = $40,000; Net Income = $25,600; OCF = $30,200
C. EBIT = $42,200; Net Income = $52,200; OCF = $54,400
D. EBIT = $40,000; Net Income = $28,000; OCF = $30,200
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