Gordon company manufactures and sells two product, butter and peanut. They sell 8,750 peanuts for $18.75 each and 10,000 butters for $15.00 each. The company has a fixed cost of $18,000 (non-plant). The peanut costs $7.50 each to make, consisting of $1.50 in variable overhead cost, $2.10 in direct materials, $8.15 per hour in direct labor and it takes employees 28.72 minutes per peanut. The butter costs $6.00 each to make, consisting of $1.50 in variable overhead, $1.58 in direct materials, $8.15 per hour for direct labor and it takes employees 21.5 minutes per butter.

The R&D team has proposed a cost-saving plan. The plan is to purchase a new machine, which would reduce direct labor by 40%. The machine cost $785,000, with a 6 years useful life and would be sold for $20,000 at the end of its useful life.

The marketing team believes that in addition to reducing labor costs, the Company would also be able to increase sales of each product by 5%. Additionally, they proposed a new product be offered, Nutella. The company would be able to sell 3,200 units at $30 each. The cost would be $10.50 per Nutella, comprised of $1.50 in variable overhead, $7.00 in direct materials, $8.15 per hour for direct labor and it takes employees 14.73 minutes per Nutella. Additionally, fixed costs would increase by $5,000.

Gordon company uses straight-line depreciation method for all plant assets, has a tax rate of 30% and expect a rate of return of 15%.

Note: all numbers provided are pre-tax

1.For each scenario (R&D team's proposal and marketing's team proposal), show the annual cash flows and the NPV of the project.

2. What would the cash outlay need to be to get $100,000 NPV with just the marketing team's plan?