Feeling ignored by Campbell's Chunky soup, Cam Newton teamed up with the Duchess of Cornwall Camilla Parker Bowles to start his own soup company Cam Bowles Soup Company.

The company has found success from products such as New Eatin Cam Chowder soup, Chicken and Dablings soup, and a black hard plastic spoon named "The Souperman Spoon".

After two years in business the business partners have decided to purchase new factory equipment that will greatly increase their production capacity.

There are two large industrial machines that produce the soup only.

The company must choose which machine to purchase.

Machine 1 - costs $5,700,000 and will have a useful life of 30,000 running hours

Machine 2 - costs $8,300,000 and will have a useful life of 5 years

Machine 1 usage is as follows

Year 1 7,000 hours

Year 2 5,000 hours

Year 3 6,500 hours

Year 4 6,000 hours

Year 5 5,500 hours

Machine 2 will use straight-line depreciation.

There is no salvage value for either machine.

If you purchase machine #1

Gross Margin = $5,130,000 in year 1 and will increase by $450,000 each year for years 2 - 5.

Total Expenses =

Year 1 $4,680,000

Year 2 $4,170,000

Year 3 $4,620,000

Year 4 $4,540,000

Year 5 $4,490,000

If you purchase machine #2

Gross Margin = $7,280,000 in year 1 and will increase by $220,000 in year 2 and by an additional $150,000 each year for years 3 - 5.

Total Expenses = $5,500,000 in year 1 and will increase by $250,000 each year for years 2 - 5.

Note depreciation expense is included in total expenses for both machines.

Note the equity balance is $13,000,000 to start both projects (don't do anything to this #)

Compare the 5 year totals for purchasing machine 1 vs purchasing machine 2 for the following:

(What are the actual numbers for each machine 1 & machine 2)

1. Net Present Value @ 11.1% (18 points)

2. Total Net Income (10 points)

3. ROI (4 points)

4. ROE (4 points)