Oakco manufactures oak furniture. The company is currently at full capacity operating

$24$ hours a day. The company's current sales are $$22,000,000$ per year and it's variable

cost are as follows:

Raw Matl.: $$6,000,000/$year

Dir. Labor: $2,000,000/$year

Var. Mfg$.$ O$.$H$.$: $8,000,000/$year

Var. Selling exp: $500,000/$year

Var. Adm. exp: $100,000/$year

Total fixed cost amount to $$3,000,000/$year including current depreciation expense for

both manufacturing, sales and administration.

Oakco has been offered a five year contract to increase production and sales by $10\%.$

In order to meet the additional production Oakco's manufacturing manager has found a

new multiple cutting mill that can increase production by $10\%$ without increasing floor

space, direct labor hours or variable overhead. In order to make room for the new

cutting mill the old cutting mill will have to be sold. The old mill was purchased $6$ years

ago for $$750,000$ and was being depreciated over a ten year period using straight line

depreciation without taking salvage value into consideration. It can be sold today for

$$150,000$ or $$50,000$ at the end of it's life.

The installed cost of the new cutting mill is $$1,500,000$ and will be financed from current

operating cash flows. To go forward with the contract inventories, accounts receivable

and accounts payable will be increased which will result in an increase in working

capital of $$350,000$ which will also be financed from current operating cash flows.

Oakco uses straight line depreciation without taking salvage value into consideration, is

in the $48\%$ marginal tax bracket and demands an $18\%$ rate of return on all investments.

Required:

Develop a spreadsheet to indicate expected net after tax cash flow and

the present value of the after tax cash flows. Optional: have the

spreadsheet calculate the MIRR.