A company requires two work centers, manufacturing and packaging, for a product line. The manufacturing work center has a current capacity of 14,000 units per month, and packaging is capable of 10,000 units per month. By the end of this year (year 0), monthly sales of the product line are expected to reach 10,000 units. Growth is projected at an additional 250 units per month through year 5. Profits are expected to be $15 per unit throughout the 5-year period.

Expansion of both manufacturing and packaging work centers is planned for this year, each to a capacity of 25,000 units per month, at a total cost of $425,000 for both work centers.

a) Calculate the annual incremental cash flows for the expansion plan and prepare a cash flow table showing demand, costs, and incremental revenue. Note that incremental means consider only the additional revenue generated from increased demand (growth) as well as the initial expansion cost.

b) Draw a fully labeled cash flow diagram for the expansion plan.

c) Determine the net present value of the expansion, if the discount rate is 12%.

d) Determine the internal rate of return of the expansion.

Remember to state each equation, then substitute in values with units. Show all your calculations.