Elmwood, Incorporated, currently sells 13,800 units of its product per year for $118 each. Variable costs total $93 per unit. Elmwood's manager believes that if a new machine is leased for $293,250 per year, modifications can be made to the product that will increase its retail value. These modifications will increase variable costs by $11.00 per unit, but Elmwood is hoping to sell the modified units for $148 each.

Required:

a-1. Should Elmwood modify the units or sell them as is?

a-2. How much will the decision affect profit?

b. What is the least Elmwood could charge for the modified units to make it worthwhile to modify them?

c. The leasing company is willing to negotiate the price of the machine lease. What is the most Elmwood would be willing to pay to lease the machine if Elmwood plans to charge $148 for the modified units?