What is the incremental profit

Reference no: EM13291671

Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $2.5 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 $4.5 million to investment and $350,000 to fixed operating costs. This change will (1) reduce variable costs per unit by $12,000 and (2) increase output by 18 units, but (3) the sales price on all units will have to be lowered to $80,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 14%, and it uses no debt.

What is the incremental profit?

Reference no: EM13291671

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