Outsource or make your own: $ .30 per cup purchase 1,000,000 cups/year If machine is purchased it costs $400,000, will last 10 years and lowers cost $ .20 per cup. (use straight-line depreciation for 10 years). Profit is positive and tax rate is 35%; opportunity cost of capital is 15%.

1. What are cash flows for making your own cups vs. outsourcing. Use relevant cash flows and explain why.

2. What is NPV of making own versus outsourcing. What is the best option: outsource or make your own?