This homework assignment will be the Cost-Benefit Analysis Challenge Problem at the end of Chapter 25 in the textbook. Following the guidelines in Chapter 25 will help you understand the return on Investment and decision-making process. You should set up the analysis/answer in a spreadsheet, and the basic information is provided below. Please add the 2 alternatives (A1: adding machine to production in Springfield, MA, A2: moving production of A-40 chair to Santiago, Chile) to your spreadsheet and submit. Assume fixed costs associated with the A40 chair of $400,000 year. *Assume five-year time horizon. 1) Your answer should include ROI, payback period, break-even volume, and break-even on investment. 2) Also include a brief 2-4 sentence explanation on on recommended course of action for the company with an explanation for your reasons. Background New England Office Chair is a maker of mid-priced office furniture. Their products can be found in many offices throughout the United States. They currently manufacture their products in two facilities, one in Springfield, Massachusetts, and the other in Santiago City, Chile. The company's headquarters is located in a separate building in Springfield. Having the facility in Chile allows New England Office Chair to take advantage of the lower labor costs in Chile, however, there are increased transportation costs and it is somewhat more difficult to oversee the Chilean facility, which negates some of the cost savings. Currently, both manufacturing facilities are leased. The lease on the Springfield manufacturing facility expires within the next six months, and the company has the option to renew the lease or vacate the space. One of New England Office Chair's best-selling models is the model A-40 chair. This chair is a mid-priced chair that is very popular for office workstations in professional offices. New England Office Chair has been able to sell 2,500 units of this chair at an average price of $500 per unit, and believes that this volume and price will be sustainable for the next five years. However, New England Office Chair is facing a key decision regarding the manufacturing of the model A-40 chair. One of the key molding machines, the Acme X11, used to shape the framing for this chair is not as productive or efficient as newer models. The machine was purchased 15 years ago with an expected 30-year useful life, and executives of the company realize they could replace the molding machine with a newer, more productive model. Currently, each A-40 chair costs New England Office Chair $300 to manufacture. This includes the costs of labor, materials, and storage and transport. John Jones, head of engineering for New England Office Chair has done some research and determined that a new molding machine, an Acme X27, can be purchased and installed in the Springfield factory for $100,000. By purchasing this machine, Jones estimates that New England Office Chair can save $10 per unit in manufacturing costs. Bill Smith, head of international operations, would like to take advantage of the lower Chilean labor costs whenever possible. After hearing about the need for a new molding machine, and meeting with Jones, Smith conducted an analysis of the costs of moving production of the A40 chair to Chile and of the cost saving that would be realized if production were moved. Smith determined that the company could lease a newer, modern building in Santiago City just down the street from the existing facility for the same cost as the existing Springfield lease. Furthermore, Smith determined that Acme could install an 27 molding machine in the Chilean plant for the same $100,000 cost as in the Springfield plant, and that it would cost an additional $175,000 for New England Office Chair to move the other equipment associated with the manufacturing of the A40 chair to Chile. Finally, Smith determined that the unit cost savings in manufacturing costs would be $25 per unit with the X27 installed in the Chilean plant vs. the $10 per unit saving Jones projected for a Springfield installation. At the board meeting, both Jones and Smith presented the arguments for their alternatives. Jones argued for $100,000 to purchase and install the new machine in Springfield and said the company would receive a $10 per unit cost savings. Smith argued for $275,000 to purchase and install the new machine in Santiago City and move the rest of the existing A-40 production to Chile. In return, Smith noted the $25 per unit cost savings, and mentioned to the board that this cost savings was an all-in number and did reflect the increased transportation costs and supervisory costs. To most members of the board, it was not clear which alternative was better for the company. The board asked Frank Brown, the chief financial officer, to conduct an analysis of the alternatives, and present this analysis at the next board meeting. Problem Assignment 1. Step into the role of Frank Brown, and conduct an ROI, payback period, and break-even volume and break-even on investment analysis of New England Office Chair's alternatives. 2. Using the ROI, payback period, and break-even volume and break-even on investment results, provide a brief two-to threeparagraph recommended course of action for the company and the reasons for this recommendation. Other Useful Information For purposes of this case, ignore any financing costs and assume the company has the cash to pay for either alternative (that is, do not assume any bank loan or imputed interest costs not specifically presented in the case). Assume that New England Office Chair's fixed costs associated with the A-40 chair are $400,000 per year. Assume a five-year time horizon