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Negi plc has been producing reusable face masks for some time. The firm is considering investing in new equipment, costing £5 million, to manufacture a new type of reusable face mask. The new version comes in a pack of 3 masks. Market research suggests the scope to sell an additional 500,000 units per year. The new number of units will be the same from year to year.

The research fee amounted to £0.45 million and will be paid in year 1 of the project. The pricing structure (in British pounds) of a typical mask is as follows: Price per unit £XX Cost per unit output Variable cost per unit 1.50 Fixed overhead cost per unit 1.00 (2.50) £YY The fixed overhead represents existing fixed costs of the mask factory. Capital allowance, on a reducing balance basis, is at 25 percent.

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