Question
A toothpaste manufacturer adds a new line of toothpaste (that contains baking soda) to its product line. Buying new equipment to manufacture the product will
A toothpaste manufacturer adds a new line of toothpaste (that contains baking soda) to its product line. Buying new equipment to manufacture the product will cost $4 million, and there will be an additional $2 million cost to reconfigure existing plant. The equipment is expected to have a lifetime of nine years and will be depreciated by the straight-line method over its lifetime. The manufacturer expects that they should be able to sell 1.3 million tubes of toothpaste per year at a price of $7.6 per tube. It will take $2.1 per tube to manufacture and support the product. If the manufacturer's marginal tax rate is 40%, what are the incremental earnings after tax in year 3 of this project (in millions)?
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