Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $1.5 million, 50 earth stations are produced and sold each year, profits total $500,000; and the firm's assets (all equity financed) are $6 million. The firm estimates that it can change its production process, adding $3 million to investment and $540,000 to fixed operating costs. This change will (1) reduce variable costs per unit by $12,000 and (2) increase output by 24 units, but (3) the sales price on all units will have to be lowered to $88,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 12%, and it uses no debt.

What is the incremental profit?

To get a rough idea of the project's profitability, what is the project's expected rate of return for the next year (defined as the incremental profit divided by the investment)?