Gross profit

timer Asked: Feb 5th, 2016

Question description

Carlyle Chemicals is evaluating a new chemical compound used in the manufacture of a wide range of consumer products. The firm is concerned that inflation in the cost of raw

materials will have an adverse effect on the project’s cash flows. Specifically, the firm expects the cost per unit (which is currently $0.90) will rise at rate of 13 percent annually over the next 3 years. The per-unit selling price is expected to rise at a meager 3 percent annual rate over the next 3 years. If Carlyle expects to sell 5.5, 7.2 and 8 million units for the next 3 years, respectively, what is the estimate of the gross profits

to the firm? Based on these estimates, what recommendation would you offer to the firm’s management with regard to this project? (note: be sure to round each unit price and unit price and cost per year to the nearest cent).

The gross profit or (loss) for year 1 is $  (round to the nearest dollar).

The gross profit or (loss) for year 2 is $  (round to the nearest dollar).

The gross profit or (loss) for year 3 is $  (round to the nearest dollar).

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