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Sales always decrease in the summer at The Coffee House, and Beatrice, the owner, wants to increase sales in the summer. Her plan is to

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Sales always decrease in the summer at The Coffee House, and Beatrice, the owner, wants to increase sales in the summer. Her plan is to sell pre-brewed and bottled teas mochas to some of the local grocery stores in the summer. She can either: (1) purchase the equipment and produce the bottled mochas internally or (2) she can license The Coffee House name to a local bottler. If Beatrice licenses the business to the local bottler, the bottler will do all the brewing, bottling and distribution and pay Beatrice 5% on every dollar of sales. Sales from this new business are expected to be $20,000 in year 1,$40,000 in year 2 and $60,000 in year 3 . Beatrice can purchase used brewing and bottling machines for about $40,000 today, which will be worthless after 3 years. Projected sales are expected to be the same as above ($20,000 in year 1,$40,000 in year 2 and $60,000 in year 3) if The Coffee House brews its own, but the contribution margin on every dollar of sales will be about 40%. Using a cost of capital of 10%, what should Beatrice do

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