Case Overview and Assumptions:

Miley Montana Restaurants $($MMR$)$ is considering upgrading system hardware in approximately $250$ of its existing restaurants to accommodate greater traffic flow in several strategic areas of the Southeastern U$.$S$.$ The upgrade will offer two primary advantages over their existing structures: $(1)$ significantly greater revenue, and $(2)$ stronger economies of scale in maintaining fixed and variable costs per store. Assume you were recently hired to participate on a team under MMR$$s CFO that is responsible for evaluating the cash flows and profitability associated with this specific project $($beginning in the summer of $2024).$

Initially, your team concludes that such a full$-$scale expansion would require new equipment costs $($within existing restaurants$)$ of $$281,000,000,$ plus an additional shipping and installation costs of $$2,500,000($to be included in the initial cost$).$ In addition, to accommodate increased cash and inventory needs, net working capital requirements are expected to rise by $$17,000,000$ so the refurbished restaurants will be operationally functional. The equipment is to be depreciated using a $5-$year Modified Accelerated Cost Recovery System $($MACRS$)$ schedule. Not knowing what the future holds, your team also concludes that this new project will exist for only $5$ years $$ thereby finishing in the summer of $2029.$

Adjustments to the company$$s operating cash flow$$s are expected to begin in July of $2024$ when the stores are deemed fully operationally functional. Also, the new equipment is expected to have a market value of $$32,000,000$ at the project$$s termination.

Last, your team makes the following assumptions regarding marginal increases in sales and costs for MMR:

$11,000,000$ units will be sold in years $1$ & $2,$ at an average sales price of $$13\mathrm{.}50$ per unit, while $13,000,000$ units will be sold in years $3,4$ & $5,$ at an average sales price of $$14\mathrm{.}50$ per unit.

Total operating costs $($both fixed and variable$)$ are anticipated to be $60\%$ of sales in years $1$ & $2,55\%$ of sales in years $3$ & $4,$ and $50\%$of sales in year $5.$

MR$$s marginal tax rate is $21\%($used in both deriving Operating Cash Flows as well as tax loss$/$gain in salvage value$).$

Last, you assume that MMR will raise all of the capital to finance this project only debt, using the following assumptions: YTM $($cost of capital$)6\mathrm{.}34\%$

In order to evaluate this project, answer the following questions in deriving a cash flow analysis and recommendation.

What is the initial cash outlay $($CF$0)?$

What are the operating cash flows in years $1$ thru $5-$ adjusted for taxes and depreciation?

What are the terminal$-$year cash flows added to the operating cash flow in year $5?$

Given your results for CF$0$ thru C$05$ and the cost of capital, would you recommend that the company take$-$on this project? Compute and explain the significance of the NPV & IRR to support your answer.