Question

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 $ 0.90)will rise at a rate of 12 percent annually over the next three years. The? per-unit selling price is currently ?$0.99,and this price is expected to rise at a meager 1 percent annual rate over the next three years. If Carlyle expects to sell 6?,7.5?,and 8 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 ?$___.?(Round to the nearest? dollar.)

Answer 1

Selling price for year 1 : .99 (1+ .01) = $ .9999     [rounded to 1 ]

cost per unit for year 1 : .90 (1+.12) = $ 1.008     [rounded to 1.01 ]

Gross Profit for year 1 : Number of units ( price -cost)

                  = 6 [1-1.01 ]

                 = 6 * - .01

                = $ - .06 million or -60,000

Gross profit /(loss) for year 1 = -60000