# what is the project’s expected rate of return for the next year

Learning Goal: I’m working on a finance discussion question and need guidance to help me learn.Gamut Satellite Inc. produces satellite earth stations that sell for \$150,000 each. The firm’s fixed costs, F, are \$1.5 million, 20 earth stations are produced and sold each year, profits total \$400,000, and the firm’s assets (all equity financed) are \$5 million. The firm estimates that it can change its production process, adding \$10 million to assets and \$500,000 to fixed operating costs. This change will reduce variable costs per unit by \$5,000 and increase output by 30 units. However, the sales price on all units must be lowered to \$140,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 18%, and it uses no debt.Schweser Satellites Inc. produces satellite earth stations that sell for \$90,025.00 each. The firm’s fixed costs, F, are \$1.70 million, 55 earth stations are produced and sold each year, profits total \$429,200.00; and the firm’s assets (all equity financed) are \$4 million. The firm estimates that it can change its production process, adding \$3.30 million to investment and \$410,000 to fixed operating costs. This change will (1) reduce variable costs per unit by \$11,635.00 and (2) increase output by 20 units, but (3) the sales price on all units will have to be lowered to \$88,470.00 to permit sales of the additional output. The firm has tax loss carry forwards that render its tax rate zero, its cost of equity is 15%, and it uses no debt.a. what is the project’s expected rate of return for the next year (defined as the incremental profit divided by the investment)?
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