Each year, Worrix Corporation manufactures and sells $3,900$ premium$-$quality multimedia projectors at $$12,900$ per unit. At the current production level, the firm$$s manufacturing costs include variable costs of $$3,400$ per unit and annual fixed costs of $$6,900,000.$ Selling, administrative, and other expenses $($not including $15\%$ sales commissions$)$ are $$10,900,000$ per year.

The new model, introduced a year ago, has experienced a flickering problem. On average, the firm reworks $40\%$ of the completed units and still has to repair under warranty $15\%$ of the units shipped. The additional work required for rework and repair caused the firm to add additional capacity with annual fixed costs of $$2,700,000.$ The variable costs per unit are $$2,900$ for rework and $$3,400,$ including transportation cost, for repair.

The chief engineer, Patti Mehandra, has proposed a modified manufacturing process that will almost entirely eliminate the flickering problem. The new process will require $$12,900,000$ for new equipment $($including installation cost$)$ and $$3,900,000$ for training. The firm currently inspects all units before shipment. Patti believes that current appraisal costs of $$600,900$ per year and $$59$ per unit can be eliminated within $1$ year after the installation of the new process. Furthermore, if the new investment is made, warranty repair cost per unit are estimated to be only $$1,900,$ for no more than $5\%$ of the units shipped.

Worrix believes that none of the fixed costs of rework or repair can be saved and that a new model will be introduced in $3$ years. This new technology would most likely render obsolete the equipment the company purchased a year ago.

The accountant estimates that warranty repairs now cause the firm to lose $20\%$ of its potential business.

Required:

$1.$ What is the total required initial investment cost $($cash outlay$)$ associated with the new manufacturing process?

$2.$ What is the total expected change $($i$.$e$.,$ increase or decrease$)$ in cost of quality over the next $3$ years from using the new manufacturing process being proposed?

$3.$ Based solely on financial considerations, should Worrix invest in the new process? Specifically: $($a$)$ What is the cumulative $($i$.$e$.,3-$year$)$ estimated change in pretax cash flow assuming the new system is implemented? $($b$)$ What is the estimated payback period for the proposed investment? $($c$)$ What is the estimated pretax internal rate of return $($IRR$)$ for the proposed investment? $($Use the built$-$in IRR function in Excel to answer this question.$)($Round your "IRR" answer to $2$ decimal places.$)$