Break-Even Point Schweser Satellites Inc. produces satellite earth stations that sell for $105,000 each. The firm's fixed cost are $3 million, 50 earth stations are produced and sold each year, profits $400,000, and the firm's assets (all equity financed) are $4 million. The 1 estimates that it can change its production process, adding $3 millior assets and $500,000 to fixed operati costs. This change will reduce variab costs per unit by $11,000 and increa output by 20 units. However, the sale price on all units must be lowered to $100,000 to permit sales of the additional output. The firm has tax Ic carryforwards that render its tax rate zero, its cost of equity is 15%, and it uses no debt. a. What is the incremental profit? Er your answer in dollars. For examf an answer of $4 million should be entered as 4.000 .000 . not 4 . Roul What is the incremental profit? Enter your answer in dollars. For example, an answer of $4 million should be entered as 4,000,000, not 4. Round your answer to the nearest dollar. $ To get a rough idea of the project's profitability, what is the project's expected rate of return for the next year (defined as the incremental pro divided by the investment)? Round your answer to two decimal places. % Should the firm make the investmen 3. since the project's expected rate of return for the next year the cost of equity. Would the firm's break-even point increase or decrease if it made the change? The change would the break-even point. Would the new situation expose the firm to more or less business risk tha the nid nno? Break-Even Point Schweser Satellites Inc. produces satellite earth stations that sell for $105,000 each. The firm's fixed cost are $3 million, 50 earth stations are produced and sold each year, profits $400,000, and the firm's assets (all equity financed) are $4 million. The 1 estimates that it can change its production process, adding $3 millior assets and $500,000 to fixed operati costs. This change will reduce variab costs per unit by $11,000 and increa output by 20 units. However, the sale price on all units must be lowered to $100,000 to permit sales of the additional output. The firm has tax Ic carryforwards that render its tax rate zero, its cost of equity is 15%, and it uses no debt. a. What is the incremental profit? Er your answer in dollars. For examf an answer of $4 million should be entered as 4.000 .000 . not 4 . Roul What is the incremental profit? Enter your answer in dollars. For example, an answer of $4 million should be entered as 4,000,000, not 4. Round your answer to the nearest dollar. $ To get a rough idea of the project's profitability, what is the project's expected rate of return for the next year (defined as the incremental pro divided by the investment)? Round your answer to two decimal places. % Should the firm make the investmen 3. since the project's expected rate of return for the next year the cost of equity. Would the firm's break-even point increase or decrease if it made the change? The change would the break-even point. Would the new situation expose the firm to more or less business risk tha the nid nno
