Problem 15-07 Break-even Point Schweser Satellites Inc. producessatellite earth stations that sell for $95,000 each. The firm'sfixed costs, F, are $2 million, 50 earth stations are produced andsold each year, profits total $400,000, and the firm's assets (allequity financed) are $5 million. The firm estimates that it canchange its production process, adding $5 million to assets and$430,000 to fixed operating costs. This change will reduce variablecosts per unit by $12,000 and increase output by 20 units. However,the sales price on all units must be lowered to $89,000 to permitsales of the additional output. The firm has tax loss carryforwardsthat render its tax rate zero, its cost of equity is 13%, and ituses no debt. What is the incremental profit? $ To get a rough ideaof the project's profitability, what is the project's expected rateof return for the next year (defined as the incremental profitdivided by the investment)? Round your answer to two decimalplaces. % Should the firm make the investment? Would the firm'sbreak-even point increase or decrease if it made the change? Wouldthe new situation expose the firm to more or less business riskthan the old one? I. The new situation would obviously have morebusiness risk than the old one. II. The new situation wouldobviously have less business risk than the old one. III. It isimpossible to state unequivocally whether the new situation wouldhave more or less business risk than the old one. Check My Work