Ut town Ltd is creating a new product the CATSO. It believes that there is a life cycle of 5 years for it. The marketing director is not keen on developing the CATSO., as he feels that it will be loss making with high research and marketing costs, and the company cannot absorb such a loss. The finance director accepts that it will be loss making in the first few years, but it will then create a profit, so she is adamant that it is worth putting up with the initial losses for the future benefits. The following information for the life of the CATSO has been created through market research, and the company knowledge of similar products: Demand Selling Price Material Labour Variable Overheads Fixed Overheads 1m units 25 7 9.50 1.75 8m pa increasing by 7% each year. increasing by 5% each year. increasing by 3% each year. increasing by 2% each year. increasing by 2% each year. increasing by 5% each year. The research and development costs amount to 1.75m, and marketing is estimated to be 500,000 in the first year, falling by 100,000 pa in each of the next four years. Requirement 1: Calculate the lifetime profit or loss of the CATSO, and comment on the statements made by both directors. Requirement 2: If the target profit margin is 10%, calculate the cost gap per unit for each of the five years of the products life and, based on your calculation, advise whether the company should proceed with the CATSO product.