Question :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 $6 million. The firm estimates that it can change its production process, adding $3 million to investment and $500,000 to fixed operating costs. This change will (1) reduce variable costs per unit by $8,000 and (2) increase output by 18 units, but (3) the sales price on all units will have to be lowered to $87,000 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?