Samuel Smith Company has signed a contract that requires them to produce and sell 60,000 units for $5 per units. A regression model was run using 24 observations to measure toatal costs as a function of units. It is as follows:

Total costs= $100,000 + $3 per unit

The standard error of the estimate is $7,500.

Required:

a) calculate the following assuming certainty:

i) Breakeven in units and in dollars

ii) Sales quantity in needed to obtain an after-tax profit of $36,000. Assume that 40% tax rate is used for only part ii.

iii) Sales in dollars needed to obtain a pretax profit equal to 20% of sales.

b) Calculate the following assuming uncertainty:

i) What is the range of incomes that would be expected with 95% confidence?

ii) What is the probability that the firm will lose money next year?