In 1997 Michelle Green started Green-Log Manufacturing, acompany dedicated to manufacturing environmental friendly man madelogs that can be burned in fire places, fire pits in the backyard,and when camping. The logs are made from environmental friendlyproducts like cardboard and clean wax and emit fewer greenhousegases and less harsh chemicals. The logs come in three pound andfive pound sizes. Green-logs are also available with citronella toward off mosquitos. The Green-Logs have been well received. Revenueand profits have grown steadily. Based on the recommendation fromher sales and marketing department Ms. Green is considering addinga new product line of Green-Log fire starters. These fire starterswould be ideal for the outdoor market of camping, fishing,backpacking, and tailgating. Ms. Green has asked her sales andmarketing team to come up with a sales forecast for units andpricing. She has also asked her manufacturing team to come up withalternatives for the production of the fire starters including whatequipment is needed and what the projected costs would be. Thesales and marketing team hired Smith and Smith Consulting toconduct a market survey. The total cost for this consulting was$32,500. Based on the survey and their own experience the sales andmarketing has provided a sales forecast. The suggested price of thefire starter is $2.50 per starter and they would be sold as a fourpack for $10.00. The unit sales forecast is 20,000 4-packs in year1, 45,000 in year 2, 60,000 in year 3, 75,000 in year 4, and thenincreasing by 5,000 each year thereafter. Sales and marketingexpenses are expected to be 10% of total revenue. The productionteam forecasts that the fixed costs needed for the fire starterproduction line will be $90,000 per year. Variable costs formaterials (cardboard, wood shavings, wax, packaging, etc.) will be$0.85 per unit or $3.40 per four pack. The labor and maintenancecosts will vary based on what equipment will be purchased. Thereare two brands of equipment that will do the job; The ABC brand andthe XYZ brand. The ABC brand is more expensive, but higher qualityand more efficient. It will cost $525,000 plus an additional$30,000 for shipping and installation. The equipment would bedepreciated to zero over 5 years using straight line depreciation.It is expected that the equipment would last for 8 years and wouldbe sold then for $55,000. Maintenance of the ABC equipment wouldcost $5,000 per year but every 3 years the equipment would need anoverhaul that would increase the cost to $75,000 for that year.Since the ABC equipment is more efficient the variable labor costwould be $0.60 per four pack. The XYZ brand is less expensive. Itwill cost $395,000 plus an additional $40,000 for shipping andinstallation. The equipment would be depreciated to zero over 5years using straight line depreciation. It is expected that theequipment would last for 8 years and would be sold then for$35,000. Maintenance of the ABC equipment would cost $10,000 peryear but every 3 years the equipment would need an overhaul thatwould increase the cost to $85,000 for that year. The variablelabor cost with the XYZ brand equipment would be $0.80 per fourpack. The increase in working capital (accounts receivable andinventory) is expected to be $60,000 at the beginning of theproject and will be the same for both machines. The company’s costof capital is 14% and its tax rate is 40%. Since her productionteam believes that both brands of equipment will last for eightyears Michelle wants this analyzed as an eight year project.Michelle has always believed in buying quality so she is leaningtowards the ABC brand equipment. But after hearing that you havelearned about capital budgeting in your Finance class at UVU shewants to take advantage of your expertise. Michelle has asked youto analyze her choices and give her some advice on which optionwould provide the best financial outcome for Green-LogManufacturing. Prepare an analysis and professional report forMichelle. The report should be professionally written and include atwo page letter, plus attached schedules. The letter should explainwhat analytical techniques you are using, why you are using thosetechniques, what the results show, what you would recommend toMichelle and why. Make sure that the letter is well organized andprofessionally written. Also make sure that the letter includes thefollowing: 1. The cash flows associated with the differentequipment brands for each year of the project. 2. The PB period,Discounted PB, IRR, and NPV for the two alternatives. 3. Yourrecommendation of which brand of equipment should be purchased.