256 5.3 The Laurentian Association of Maple Syrup Producers of Quebec are considering the formation of a cooperative to build and operate a processing and canning plant to produce and market their production of maple syrup to the Canadian and international market Suppose that the annual total fixed cost of the plant is estimated to run at $1,000,000 while the unit average variable cost of making each can of maple syrup is estimated at $3.00 per unit. Suppose that the average wholesale selling price of a can of maple syrup is currently $5.00 per can. At the current market price of $5.00 per can what is the minimum amount of cans that the plant must produce before it covers its costs? What is the contribution margin? Draw a chart showing the TR and TC and identify the break/even point. Place TR and TC on the y axis and the quantity of production on the x-axis. b) Suppose that the market price rises to $5.50 per can, what will happen to the break/even point of the plant? What will happen to the contribution margin? Illustrate this change on the chart you made above. C) If the total fixed cost runs at a better than expected $800,000 a year, based on the $5.00 price, how will this affect the break/even point of the plant? Will it affect the contribution margin? Suppose that the cooperative expects the following unit sales (Q) in each of the first five years of the life of the plant: Year Quantity TR TC n Year 1: 200,000 Year 2: 400,000 Year 3: 600,000 Year 4: 800,000 Year 5:1,000,000 in the table above calculate the projected total revenue (TR), total cost (TC) and the total profit (1 ) for each of the five years based on a projected selling price of $5.00 per can. Draw a chart showing the TR and TC for each of the five years of the cooperative's business plan, (TR and TC on the y-axis and years 1 to 5 on the x-axis). How long will it take the cooperative to break/even if the market price averages at $5.50 per can? Suppose that the members of the cooperative are asked to invest $4,000,000 of their own money, what will be the rate of return on their equity investment (ROE) on the fifth year of operation assuming that P = $5.00 and TFC = $1,000,000? Would you recommend that they accept or reject the proposal