Analyze the following 4 project choices. You have a maximum budget of $450,000. Which would you choose and why? Complete the recap. If you just submit a one sentence answer you will not receive full credit.

Premise: you are the financial manager for a pet food supply company that is currently at capacity. While sales have seen a steady increase of between 3-6% over the past several years, the marketing department has released the below industry information. The executive management team is working on strategic planning for the next 2-3 years and needs input from you. WACC 7.5%

Option A: R&D project to develop new dog food that caters to the clean eating trend to help ensure long term growth. The new product would be launched by first quarter 2022 at a cost of $450,000.

	1	2	3	4
New Sales	200,000	$400,000	$460,000	$520,000
Less costs	120,000	240,000	276,000	312,000
Net CF

Option B: Subcontract production line which would decrease the overtime cost (labor savings) but would decrease margin by increasing costs. The upfront cost of this 4 year agreement is $135,000

	2022	2023	2024	2025
Labor Savings	$60,000	$70,500	$81,150	$91,960
Contract cost	$30,000	33,000	36,300	39,930
Net CF

Option C : Purchase a more efficient machine for production line at a net initial investment of $100,000. This would allow for the possibility of increased sales, which still may result in overtime so no projected labor savings. The increased sales projection is not exactly known yet, but you were given the following probability data from marketing for the 4 year time span being reviewed. MACRS 3 year*. It is expected the machine could be sold at the end of the 4th year for $20,000. Tax 40%.

New Sales Probability	Best	0.15	80,000
	Most likely	0.60	50,000
	Worse	0.25	30,000
New sales	Expected cost/year	$14,500

Option D: Lease a more efficient machine for production line at an annual cost of $24,000. The installation cost for the machine is $20,000. The machine would allow for the possibility of increased sales. The increased sales projection is not exactly known yet, but you were given the following data from marketing for the 4 year time span being reviewed. Lease cost for the machine is $24,000 per year. Production costs are $14,500 per year

New Sales Probability	Best	0.15	80,000
	Most likely	0.60	50,000
	Worse	0.25	30,000
New sales	Expected cost/year	$38,500

Recap of Choices

Option	Initial Cost	NPV$	IRR%
A RD NEW PET FOOD	450,000
B SUBCONTRACT	135,000
C PURCHASE MACHINE	100,000
D LEASE MACHINE	20,000
CONSIDERATIONS.