Use the following information to answer all questions: Management of XYZ are considering investing in a new business line for producing a new product. The following data are relevant to the business line: Business line machinery will cost $1,000,000 and have 10 years useful life and requires $50,000 maintenance annually 2 Line will have a normal capacity to produce 100,000 units annually 3 The line will be based in a factory rented and used by XYZ at $100,000 of which 40% will be allocated and charged to the business line. 4 Below are the materials used in producing the product: Quantity Cost RM1 0.1 KG $200 per KG RM2 1 piece $100 per box of 20 pieces Salaries are paid as follows: Head office salaries $100,000 annually Factory labor $200,000 annually Sales staff $120,000 annually 6 XYZ will charge the business line $50,000 annually for Administration services (such as accounting, HR and other service) 7 At the end of year 5, the business line will be closed and the machinery will be sold to a third party for $450.000The investment and required working capital will be financed with 60% equity and 40% debt. 9 The new line is planned to produce and sell 50,000 units in year 1. 60,000 units in year 2 growing by 10% for the remaining years 10 Selling price for the product will be $50 per unit expected to rise by 10% starting year 3 11 Raw materials are imported from a foreign country and their prices are expected to increase by an annual inflation rate of 7% 12 Working Capital: Sales are 20% cash and 80% credit due within 60 days Raw Material purchase are made on credit due within 30 days Factory rent is paid in advance on December 31 of each year 13 The company's dividend policy is 40% of net profit starting year 2 for this project (i.e. no dividend on year 1 net profit) 14 Cash balance should be minimum of100,000 15 Debt to be paid over 2 yearsThe gross margin for year 1 is : O a. 1.640.000 O b. 835.000 O C 860.000 O d. 1.005.000 The operating income for year 1 is: O a. 590.000 O b. 1.180.915 O C. 690.000 O d. 835.000