Question 1 You are considering an investment in a project to introduce a new product to the market. The initial investment required is S130,000. If the new product is successful, next period's demand will produce after-tax cash flows of $24,000 per year indefinitely into the future. If the product is not successful, future after-tax cash flows will only be $10,000 per year for the next fifteen years (and zero thereafter). Assume a discount rate of 13 percent. a. Should the new product be introduced, if the probability of a successful product is 50 percent? b. Determine the smallest possible probability of a successful product such that the project should be adopted (to the nearest percent) uestion 2 Two firms, Sky and Sun, from the same industry reported the following income statements Calculate the operating leverage for the two firms (using 2017 sales as the base) and then compare the leverage of all types used by the two firms and discuss its impact on the firms' cost of capital Sky, Inc. Sales 2018 $110,000 $150,000 105,000 15,000 30,000 2017 -COGS and Other Variable Operating Costs 77,000 15,000 18,000 Fixed Operating Costs EBIT -Interest EBT 30,000 9,000 S 12,60021,000 18,000 5,400 Iaxes Net Income Sun, Inc. Sales -COGS and Other Variable Operating Costs -Fixed Operating Costs EBIT -Interest EBT 2018 $110,000 $150,000 90,000 25,000 35,000 5,000 30,000 9,000 S 9,800 $21,000 2017 66,000 25,000 19,000 5,000 14,000 4,200 Taxes Net Income