QUESTION 7 (25 minutes, 14 marks) Orion Ltd. is planning a massive expansion to its manufacturing plant. The cost of the expansion is $10,000,000 which consists of new state-of-the-art equipment. The estimated life of the new equipment is ten years after which it will be sold for two million dollars. The new equipment is expected to increase production by 5,000 units each year. The selling price of one unit is expected to remain constant at $1,200. Variable production costs are $300 per unit and the allocated common corporate fixed overhead costs will be $5 per unit. A new employee will have to be hired to operate the new equipment; their salary will be $100,000 per year, which includes all benefits. The company has a 10% after tax rate of return and a 22% corporate tax rate and classifies the equipment in class 8, which has a CCA rate of 20%. It looks like the repairs and maintenance on the equipment will be about $150,000 per year. REQUIRED: 1 Calculate the net after tax annual increase in cash flow from the expansion. Ignore CCA in the cash flow calculation (7 marks) 2. Calculate the after-tax net present value. Use tax shield formula. (7 marks)