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Comet Cents Supplemental Documentation

As shown in our video presentation, we at Comet Cents believe that Option 2 is the
best fit for Humble Pies, Inc. based on a financial, strategic, and risk standpoint. The
following calculations and graphics will explain our confidence in this option.

The total revenues of


the three year
contract in Option 1
can be found by
multiplying the
number of pies
requested by the
chain by the price the
chain will pay per pie.
This yields the
$3,300,000 in
revenues that seems
so appealing.
However, when
multiplied by the 15%
profit margin and analyzed on a monthly basis, the increase in profits is only
$13,750.

For Option 2, the


monthly profits can
be found by adding
the $13,000 of
increased revenue
per month and the
$14,500 in labor
savings. Then, the
monthly
depreciation
expense of
$8,333.33 and the
$2,600 of the 20%
marginal increase
must be
subtracted, yielding a $16,567 profit. Take into account that due to a lack of
information, the 20% marginal increase in costs was calculated using the increase
of $13,000 in revenue per month. Therefore, this number is inflated as the 20%
marginal increase in costs will be lower than the revenues. This means that our
monthly increase in profits is understated and Option 2 will have an even greater
increase in profits than Option 1.

Useful Life of Machines Purchased in Option 1

Used; 30%

Wasted; 70%

This graph is a visual


representation of the useful life of the client-specific machine purchased in Option 1.
As shown, the machine will only be utilized for thirty percent of its useful life,
assuming the contract is not renewed. This means that seventy percent of the
machines life is wasted. Depreciation expenses for this machine will be $500,000
for ten years, and $50,000 per year, meaning that $350,000 of machine value will
be wasted.

Useful Life of Machines Purchased in Option 2

Used; 100%

This graph is a visual


representation of the useful life of the general labeling machine purchased in Option
2. As shown, one-hundred percent of the machine will be used over the five-year life
span as the machine can be used for every client and every type of pie. It will be
useful during seasonal influxes and will keep overall labor costs down. Unlike Option
1, the entire $500,000 value will be utilized, making this machine investment the
better option for Humble Pies.

As shown in the calculations and graphics above, Option 2 is the best choice for the
future of Humble Pies, Inc. It will not only provide more profit per month than Option
1, it will also provide long term financial security by building a broad, strong
foundation for the company to grow on. With this foundation, and the increase in
productivity it would provide, the company would have the resources to successfully
obtain many new clients (including multiple national chains), causing a boom in
growth. Option 1 would provide for none of these things, causing a smaller profit
margin per month, and a useless machine after the end of the contract period. For
Humble Pies, Inc. to continue to enjoy the success and growth that they have seen
thus far, Option 2 is essential.