Question

# (Calculating inflation and project cash​ flows) Carlyle Chemicals is evaluating a new chemical compound used in...

(Calculating inflation and project cash​ flows) 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 that the cost per unit​ (which is currently \$ 0.86​) will rise at a rate of 13 percent annually over the next three years. The​ per-unit selling price is currently ​\$0.96​, and this price is expected to rise at a meager 4 percent annual rate over the next three years. If Carlyle expects to sell 6.5​, 7.5​, and 10 million units for the next three​ years, respectively, what is your estimate of the​ firm's gross​ profits? Based on this​ estimate, what recommendation would you offer to the​ firm's management with regard to this​ product? ​(Note​: Be sure to round each unit price and unit cost per year to the nearest​ cent.)

The gross profit or​ (loss) for year 1 is ​\$

The gross profit or​ (loss) for year 2 is ​\$

The gross profit or​ (loss) for year 3 is ​\$

 Gross profit = Sales - Cost of Goods sold Year 1 Year 2 Year 3 Selling price per unit 1 1.04 1.08 Cost per unit 0.97 1.1 1.24 Gross Profit per unit 0.03 -0.06 -0.16 Number of units 6,500,000 7,500,000 10,000,000 Gross Profit 195,000 (450,000) (1,600,000) The product should not be produced year 2 onwards

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