Problem #12: Planning and Control Don't-Cha-Wanna-a-Coffee, a large-scale coffee company that has a chain of 125 retail coffee stores throughout New England, was embroiled in an ethics scandal 3 years ago. One of their employees overinflated the company earnings which caused the value of the stock to plummet. Investors were not happy, so they pulled out a large majority of their investment and sales were hurt by the negative publicity. To help recover from this catastrophe, the chief operating officer (COO) is considering making an investment to purchase a machine that speeds up the cooking time of their top secret donut. The donuts produced from this machine allows the consumer 1 granted wish. Sales are so widely popular that the current donut machine just cannot keep up with supplying enough (production) for the customers' demand. Dunkin, the COO, hopes that this new machine allows the donuts to be produced quicker than the stand-alone production machine. This will allow for an increase to the volume of donuts produced within the same time frame that current production is running. Dunkin is a financially savy employee, so he requires an evaluation of the effect this purchase will have to his compensation. Dunkin receives a base salary plus 30% bonus of his salary if he meets certain benchmarks. Below is the information he has given you for his required analysis. He wants it on his desk by the end-of-semester! 1a. Calculate the sales margin without the new machine. 1b. Calculate the sales margin with the new machine. 2a. Calculate the asset turnover without the new machine. 2b. Calculate the asset turnover with the new machine. 3a. Calculate the Return On Investment without the new machine. 3b. Calculate the Return On Investment with the new machine. 4a. Calculate the Residual Income without the new machine. 4b. Calculate the Residual Income with the new machine. 5a. Calculate the Economic Value Added without the new machine. 5b. Calculate the Economic Value Added with the new machine. 6a. Calculate the sales margin with the new machine. 6. Calculate the sales margin with the new machine. 7. Should COO Dunk purchase the machine? Justify your answer with facts. Financial Data for consideration: Machine cost Projected generated income by new machine Income generated without new machine Beginning year capital assets (w/out machine) End of year captial assets (w/out machine) Tax rate Minimum rate of return Weighted average cost of capital Sales without machine Sales with machine $ 2,800,000 $ 800,000 $ 6,800,000 $ 7,800,000 $ 8,200,000 21% 12% 7% $ 17,800,000 $ 19,200,000