After extensive research and development, Goodwear Tires Inc. has recentlhy developed a new tire, the SuperTread, and must decide whether to make the investment necessary to produce and market it. The tire would be ideal for drivers doing a large amount of wet weather and off-road driving in addition to normal highway usage. The research and development costs so far have totalled about $10 million. The SuperTread would be put on the market beginning this year, and Goodwear expects it to stay on the market for a total of four years. Test marketing costing $5 million has shown that there is a significant market for a SuperTread- type tire. As a financial analyst at Goodwear Tires, you have been asked by your CFO to evaluate the SuperTread project and recommend whether to go ahead with the investment. Except for the initial investment, which will occur immediately, assume all cash flows will occur at year-end. Goodwear must initially invest $160 million in production equipment to make the SuperTread. This equipment can be sold for $65 million at the end of four years. Goodwear intends to sell the SuperTread to two distinct markets: 1. The original equipment manufacturer (OEM) market. The OEM market consists primarily of the large automobile companies (like General Motors) that buy tires for new cars. In the OEM market, the SuperTread is expected to sell for $41 per tire. The variable cost to produce each tire is $29 2. The replacement market. The replacement market consists of all tires purchased after the automobile has left the factory. This market allows higher margins; Goodwear expects to sell the SuperTread for $62 per tire there. Variable costs are the same as in the OEM market