Question 3 [5 pts]

All Electric Mobile Corp. (AEM) is conducting a capital budgeting analysis for the full-scale production of a new commercial vehicle that has been developed recently. The firm has come up with the following information:

The production requires a new facility, which will cost the firm $440 million. The facility has a useful life of 10 years and a salvage value of $20 million at the end of 10th year.

The estimated demand for the new vehicle is 10,000 units per year.

The sales price of the new vehicle will be $50,000 per unit.

The production requires 600 hours of labor per unit, and the estimated labor cost is $30 per hour. It also requires various parts and supplies that will cost $16,000 per unit.

The firm expects additional operating expenses to be incurred. These are estimated to be $20 million per year.

Answer questions (a) and (b) below.

A) Calculate depreciation expense per year and the production cost (i.e., cost of goods sold) per year. Do NOT present your answer by multiplying annual figures by 10 years.

Answer (show the steps/calculation toward your results):

B) Determine EBIT per year. Do NOT present your answer by multiplying annual figures by 10 years.

Answer (show the steps/calculation toward your results):