A Carlyle chemical 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 projects cash flow. Specifically, the firm expects the cost per unit (which is currently $0.84) will rise at a rate of 13% annual rate over the next three years. The per-unit selling price is currently $0.95 and this price is expected to rise at a meagre 1% annual rate over the next three years. If Carlyle expects to sell 6.5, 7.5 and 8 million units for the next three years, respectively, what is your estimate of the gross profits to the firm? Based on these estimates, what recommendation would you offer the firm’s management with regard to this product? Round each unit price and unit cost 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 _____