Oyen Bhd ("Oyen") produces stereo components that sell at P = RM100 per unit. Oyen's fixed costs are RM200,000, variable costs are RM50 per unit, 5,000 components are produced and sold each year, EBIT is currently RM50,000 and Oyen's assets (all equity financed) are RM500,000. Oyen can change its production process by adding RM400,000 to assets and RM50,000 to fixed operating costs. This change would (1) reduce variable costs per unit by RM10 and (2) increase output by 2,000 units but (3) sales price on all units would have to be lowered to RM95 to permit sales of the additional output. Oyen has tax loss carry-forwards that cause its tax rate to be zero, its uses no debts and its average cost of capital is 10%. Required: (a) Should Oyen make changes? Why and why not? (b) Would Oyen's breakeven point increase or decrease if it made the change? (c) Suppose Oyen was unable to raise additional equity financing and had to borrow the RM400,000 at an interest rate of 10% to make the investment, find the expected Return On Assets ("ROA") of the investment. Should Oyen make the change if debt financing must be used? Explain Note: Formula: 1. Breakeven point (in RM), Sales/Revenues = Total Variable Costs + Total Fixed Costs 2. ROA EAT/ Total assets