Train Express Inc. produces trains that sell for $250,000 each. The firm's fixed costs, F, are $3 million, 50 trains are produced and sold each year, profits total $750,000, and firm's assets (all equity financed) are $7million. The firm estimates that it can change its production process, adding $4 million to assets and $500,000 to fixed operating costs. This change will reduce variable costs per unit by $10,000 and increase output by 20 units. However, he sales price on all units must be lowered to $225,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 16%, and it uses no debt.

A. What is the incremental profit? Round your answer to the nearest dollar. 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)? Round your answer to two decimal places. Should the form make the investment?

B. Would the firm's break-even point increase or decrease if it made the change?

C. Would the new situation expose the form to more or less business risk than the old one?