Vernon-Nelson Chemicals

Cost: $15million

Additional:$2million

Sell: 1.5million gallons @$53 each

If $36 a gallon, 40% marginal tax rate

Incremental Earn after tax in year 3?

Vernon-Nelson Chemicals is planning to release a new brand of insecticide, Bee-Safe that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost $15 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 firm expects that they should be able to sell 1,500,000 gallons per year at a price of $53 per gallon. It will take $36 per gallon to manufacture and support the product. If Vernon-Nelson's marginal tax rate is 40%, what are the incremental earnings after tax in year 3 of this project