Restore Ltd. has just developed a new product to be called Relounge and is now considering whether to put it into production. Costs incurred in the development of Relounge were 400,000. Production of Relounge would require the purchase of new machinery at a cost of 6,000,000 (payable immediately). The machinery would have a useful life of 4 years, at the end of which its salvage value would be zero. Production costs per unit of Relounge (at year 1 prices) would be as follows: Variable materials 23 Variable labour 36 Variable overheads 10 In addition, fixed production costs (at year 1 prices), including straight line depreciation on plant and machinery would be 1,800,000. The selling price of Relounge will be 110 per unit (at year 1 prices) and sales are expected to be 58,000 units in each of the next 4 years. The retail price index is expected to rise at a rate of 3% per year for the next 4 years and the selling price of Relounge is expected to rise at the same rate. Annual inflation rates for production costs are expected to be as follows: 2% Variable materials Variable labour Variable overheads 4% Windov Wir "". 5%