Question 4 (3 Marks) Pothier Company produces a single product. It sold 25,000 units last year with the following results: Sales ($25/unit) $625,000 Variable Exp.($15/unit) $375,000 Fixed Costs $150,000 $525,000 Net Income before taxes $100,000 Income Tax (45%) $45,000 Net Operating Income $55,000 In an attempt to improve its product in the coming year, Pothier is considering replacing an existing $4.50 component in its product with a new and better part that costs $6.00 per unit. A new machine will also be needed to increase plant capacity. The machine would cost $20,000, with a useful life of 5 years and no salvage value. The company uses straight-line depreciation on all plant assets for both financial statements and tax purposes. Required: 1. What would new price would set to keep the original contribution margin ratio. Hint: The new price you are setting is after the above changes while the original contribution margin is referring to prior to any changes. The change is removing a part that is 2.50 and replacing it with a part that is $5.50 along with the purchase of the new equipment. (Hint: This is the exact same question data from the midterm but with a different replacement part cost)