Monster Toys is considering a new toy monster called Garga. Annual sales of Garda are estimated at 100,000 units at a price of $8 per unit. Variable manufacturing costs are estimated at $3 er unit, incremental fixed manufacturing costs (excluding depreciation) at $60,000 annually, and additional selling and general expenses related to the monsters at $40,000 annually. To manufacture the monsters, the company must invest $400,000 in design molds and special equipment. Since toy fads wane in popularity rather quickly, Monster Toys anticipates the special equipment will have a three- year service life with only a $10,000 salvage value. Depreciation will be computed on a straight-line basis. All revenue and expenses other than depreciation will be received or paid in cash. The company’s combined federal and state income tax rate is 30 percent.