A new technology now makes it possible to put a coating on a window pane which resists the adhesion of dirt and debris, giving the window a self-cleaning effect in the rain. A window manufacturers sales division sees great value in being able to offer this coating to their customers, and studies have shown that customers are willing to pay extra for this feature. It is possible to apply this coating to the window panes if $1,594,000 is invested in new equipment. The per-window raw materials will be $2.39 more expensive.

When the window with the new coating is mounted in the frame, it must be handled more carefully and requires additional quality control before and after this process. This means that labor costs will increase by $1.91 per window.

Select financial data for windows without the coating technology are given in Table 1 below.

Table 1
	per window	% of selling price
Materials	$127.57	57.1%
Wages and salaries	$31.89	14.3%
Additional costs	$15.95	7.1%
Depreciation	$6.38	2.9%
Manufacturing costs	$181.79	81.4%
Sales costs	$15.95	7.1%
Marketing	$14.35	6.4%
Profit	$11.16	5.0%
Selling price	$223.25	100%

Approximately 200,000 windows are sold each year. This trend is expected to continue. The company uses a minimum acceptable rate of return (MARR) of 7%.

Question 1

The new equipment is to be depreciated using modified accelerated cost recovery method (MACRS) with a recovery period of 3 years. By how much would this increase the line item Depreciation in Table 1?

Question 2

The company wants to maintain a profit margin of 5%. By how much should the selling price of a window be increased as a result of the new coating?

Question 3

Calculate the PW of the investment in the new technology over a 5-year period.

Question 4

What is the minimum amount by which a windows selling price can be increased in order for the investment to be profitable over a 5-year period?