Question: I need understanding a homework question. I attached the problem and my excel sheet. Break-Even Point Schweser Satellites Inc. produces satellite earth stations that sell

 I need understanding a homework question. I attached the problem andmy excel sheet. Break-Even Point Schweser Satellites Inc. produces satellite earth stations

I need understanding a homework question. I attached the problem and my excel sheet.

that sell for $100,000 each. The firm's fixed costs, F, are $2million, 50 earth stations are produced and sold each year, profits total

Break-Even Point Schweser Satellites Inc. produces satellite earth stations that sell for $100,000 each. The firm's fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $4 million to investment and $500,000 to fixed operating costs. This change will: (1) reduce variable costs per unit by $10,000 and (2) increase output by 20 units, but (3) the sales price on all units will have to be lowered to $95,000 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? 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)? Should the firm make the investment? Why or why not? b. Would the firm's break-even point increase or decrease if it made the change? c. Would the new situation expose the firm to more or less business risk than the old one?P 16-7 Now Proposed A Assets EBIT = Rev - F - VC Fixed costs =p*n - F - v*n Variable cost/unit SO: V= Production (-EBIT + rev - Fyn Selling price Total revenue Profit = EBIT since no debt or tax EBIT = rev - F - v*n Incremental profit Return

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