The company contemplates entering the business of highend wedding cakes- In 2013 more than 300,000 couples had their weddings in the Northeast region of the U5. and a wedding cake was a must-have item in virtually auofthest; weddings. Wedding cakes come in all shapes and sizee and are priced between $200 to $1,000 each John Benson and Jerry Chen, the owners ofJELJ Bagel, hope to capture a large portion of the lucrative wedding cake market in the Northeast region and need to perform a nancial analysis to determine the suitability of this business project. 1&1 Bagel has already spent $25,000 to create a large catalog of 300 different wedding cakes to be offered to potential clients. The company has spent a further $20,000 for a marketing study to determine the expected sales gures for the wedding cakes. 4 1&1 Bagel can produce wedding cakes for $215 each in variable costs. This is an average gure; variable costs per wedding cake can be higher or lower depending on the type and the size of the wedding cake. Fixed costs for the operation are estimated to run $43 million per year. The estimated sales volume is 30,000 wedding cakes per year for the next ve years- The average price perwedding cake will be $500. The necessary equipment can be purchased for $32-5 million and will be depreciated on a seven-year IMAGES schedule (see Table 1). It is believed the salvage value of the equipment in ve years will be $35 million 44 Investment in net working capital (inventories of raw materials, etc-2*= which is expected to he 20 percent ofto'tal annual sales= will occur in Year 0. This net working capital will be recovered inYear 5 when the projectisterminated. JMBagelhas a35 percent corporatetaxrate and a 12 percent required return.