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CoursHeroTranscribedText: ETC Products Company manufactures several different products. One of the firm's principal products sells for P20 per unit. The sales manager of ETC. Products has stated repeatedly that he could sell more units of this product if they were available. In an attempt to substantiate his claim, the sales manager conducted a market research study last year at a cost of P44,000 to determine potential demand for this product. The study indicated that ETC Products could sell 18,000 units of this product annually for the next five years. The equipment currently in use has the capacity to produce 11,000 units annually. The variable production costs are P9 per unit. The equipment has a book value of P60,000 and a remaining useful life of five years. The salvage value of the equipment is negligible now and will be zero in five years. A maximum of 20,000 units could be produced annually on the new machinery which can be purchased. The new equipment costs P300,000 and has an estimated useful life of five years with no salvage value at the end of the five years. ETC Product's production manager has estimated that the new equipment would provide increased production efficiencies that would reduce the variable production costs to P7 per unit. ETC Products Company uses straight-line depreciation on all of its equipment for tax purposes. The firm is subject to a 40 percent tax rate, and its after-tax cost of capital is 15 percent. The sales manager felt so strongly about the need for additional capacity that he attempted to prepare an economic justification for the equipment. Although this was not one of his

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