Robbie Daniels, Manager of the North Central Region of PATE Petroleum is considering a proposal to corporate headquarters to offer employee training in several plants in Southeast Texas. The training would reduce labor costs at those plants.

The combined income statement for the plants under consideration are as follows (in thousands 000 omitted):

Revenues	$8,500
Costs:
Direct labor	4,400
Supplies	200
Indirect labor	1,200
Utilities, taxes, etc.	600
Lease office space	800
Computer hardware and software	600
Miscellaneous	120
Marketing	450
Administration	380
Net income	-250

-The costs are expected to continue in the future unless the training is obtained.

-The training is expected to reduce direct labor by 25% and indirect labor by 20%. No other costs are expected to be affected by the training. The training will cost $4,000,000 will be paid to the North Central Region at the beginning of the training process. Assume a five-year time horizon.

-If the companys after-tax cost of capital is 12%, determine whether the new training should be offered. Show supporting computations.

Required: use as much space as you need.

The Chief Operating Officer of PATE Petroleum, Charles Palmer, has asked you to analyze this opportunity and make a recommendation.

1. Write a memo, in good form, to Mr. Palmer with your recommendation.
   1. Paragraph 1: Restate the proposal. Do not copy and paste from the above. Do not include the data. This is descriptive only. You must have a minimum of 3 sentences.
   2. Paragraph 2: Describe your methodology for analyzing the data. You must have at least 3 sentences. You may include the relevant data from above in a table or tables. Present your results. (You must use the NPV function in Excel to calculate the present value of the annual cash flows. Include the spreadsheet with your submission.)
   3. Paragraph 3. Make your recommendation based on the information provided. This is the most important part of the analysis. Would you recommend offering Ms. Daniels program to the managers of the plants in Southeast Texas? Support your recommendation using both quantitative and qualitative factors. You must have at least 3 sentences.
   4. Before Robbie Daniels is given her answer, are there other questions you would like to have answered or data you think could be relevant to the analysis? Is the recommendation you made above the final recommendation?
   5. Thank Mr. Palmer for the opportunity to work on this project and wrap up the memo.