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A market research firm was engaged to conduct a feasibility study for the TSR. The market research report proposed that the TSR could be sold for $300 per unit. Demand was projected at 100 000 units per annum for at least the next five years. This is followed by an annual increase of 10%. Demand is assumed to accrue evenly through the year, with price remaining unchanged. The bill for the market research report amounted to $30 000.

The production line would need to be expanded by purchasing and installing new machines for the manufacture of the TSR. The finance manager, Betty Pan, estimated that machine cost and installation would total $80 million, with an estimated useful life of ten years. Residual value if machine disposal occurs between year five and ten is estimated at $10 million. The projected production output from this new installation should be at least 8 500 per month during its useful life. Raw materials for the TSR production would be $80 per unit. The value of raw material inventory was estimated to amount to one month’s production. Labour cost associated with the TSR would increase by $90 000 per month and utilities expenses rise by $20 000 per month. Selling and distribution overheads would be levied at 1% of sales revenue.

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