Fin/534 – homework set #5 136257
You can calculate the incremental profit by subtracting the cost to make the change and subtracting it from the revenue expected. The project’s expected rate of return for the next year would be calculated by taking this incremental profit and dividing it by the investment required to make the change.
These calculations should help you decide if this is a project worth your investment. If, after taking into account all risks and costs, the project still has a potential net benefit, then this should be pursued.
Implementing such a change will most likely lead to an increase in the break-even point. This is due to increased expenses like hiring additional workers, purchasing new materials and equipment. When assessing whether this project can be sustained over the long-term, it is important to consider the higher breakeven point.