Question

**(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 $0.84)
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 4 percent annual rate over
the next three years. If Carlyle expects to sell 5.5, 7.5, and 10
million units for the next three years, respectively, **what
is your estimate of the firm's gross profits?**
**(Round to the nearest dollar.)**

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.)

Answer #1

Gross Profits | ||||||||

Year | 1 | 2 | 3 | |||||

Sales | 5.5 | 7.5 | 10.0 | |||||

Unit price | 0.99 | 1.03 | 1.07 | |||||

Revenue | 5.45 | 7.72 | 10.71 | |||||

Unit cost | 0.84 | 0.94 | 1.05 | |||||

Cost of goods sold | 4.62 | 7.06 | 10.54 | |||||

Gross Profit | 0.83 | 0.67 | 0.17 | |||||

The net margin of this product will decrease with time. It is thus not projected to be very profitable | ||||||||

(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...

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