Rare Agri$-$Products Ltd$.$ is considering a new project with a projected

life of seven $(7)$ years. The project falls under the government$$s

subsidy program for encouraging local agricultural products and is

eligible for a one$-$time rebate of $25\%$ on any initial equipment

installed for the project. The initial equipment $($IE$)$ will cost

$$41,000,000.$ At the end of year $1,$ an additional equipment $($AE$)$ costing

$$2,500,000$ will be needed at the end of year $3.$ At the end of seven

$(7)$ years, the original equipment, IE$,$ will have no resale value but

the supplementary equipment, AE$,$ can be sold for $$50,000.$ A working

capital of $$1,350,000$ will be needed.

The project is forecast to generate sales of agri$-$products over the

seven years as follows:

Year $170,000$ units

Year $2100,000$ units

Years $3-5250,000$ units

Years $6-7325,000$ units

A sale price of $$150$ per unit for the first two years is expected and

then decline to $$90$ per unit thereafter as the newness of the product

loses some sheen. The variable expenses will amount to $30\%$ of sales

revenue. Fixed cash operating expenses will amount to $$1,100,000$ per

year.

The company falls in the $25\%$ tax category for ordinary income and $40\%$

tax category for capital gain.

The initial equipment is depreciated as per the $7-$year MACRS system

and the additional equipment is depreciated on a straight$-$line basis.

In the event of a negative taxable income, the tax is computed as

usual and is reported as a negative number, indicating a reduction in

loss after tax.

The initial financing of the project will be carried out as follows:$-$

$55\%$ equity and $45\%$ debt. The company paid $$1\mathrm{.}50$ per share in the form

of dividend this year, which is likely to increase at a rate of $3\%$

per year for the near future. The current price of the company$$s stock

is $$9\mathrm{.}50$ per share. The bank loan is likely to be arranged at an

interest rate of $13\mathrm{.}5\%$ p$.$a$.$

You are required to:

Compute the OCF for years $1$ through $7$