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 $ 0.87 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 3 percent annual rate over the next three years. If Carlyle expects to sell 6.5,6.8​, 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.)

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.)

Since the gross profits are steadily ​, Carlyle needs to    the rate of growth in cost ​and/or the rate of growth in price. ​ (Select from the​ drop-down menus.)

Answer 1

Particulars	Year 1	Year 2	Year 3
Selling price	0.9888	1.018464	1.04901792
Cost per unit	0.9831	1.110903	1.25532039
Gross Profit per unit	0.0057	-0.092439	-0.20630247
Units sold	6500000	6800000	8000000
Total gross profit	37050	-628585.2	-1650419.76

The company should not produce this product as the gross profits are negative in future. Also the cost are increasing thrice the amount of increase in selling price.