Question

Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $13.00 million fully installed and will be fully depreciated over a 20 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.74 million per year and increased operating costs of $568,841.00 per year. Caspian Sea Drinks' marginal tax rate is 23.00%. If Caspian Sea Drinks uses a 12.00% discount rate, then the net present value of the RGM-7000 is _____.

Answer 1

Solution :

The Net Present Value of the RGM-7000 is = $ 6,355,512.72

= $ 6,355,513 ( When rounded off to the nearest whole number )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

20.11.2019 Microsoft Excel Sign FORMULAS FILE НOME INSERT PAGE LAYOUT DATA REVIEW VIEW A B C D E F G H К L Statement showing calculation of Net Present value of the Project 1 Increased Additional Depreciation = 13000000/ 20 before tax Operating Income Tax @ 23 % (5) (4) 0.23 Cash flow after Addback Depreciation (3) Cash flow after PV Factor Discounted Cash Sl.No. Year Particulars Operating Inflows Тax @ 12 % revenues tax (4)(1)- (2)- (3) (6) (4)- (5) (7) (6)+(3) (8) (9) (7) (8) (1) costs - 650000 (3) (2) $3,740,000.00 $ 568,841.00 650,000.00 $ 3,740,000.00 $568,841.00 $650,000.00 $ $ 3,740,000.00 $ 568,841.00 650,000.00 $3,740,000.00 568,841.00 650,000.00 $ $ 3,740,000.00 $568,841.00 $650,00o.00 $ $3,740,000.00 568,841.00 650,000.00 $ $3,740,000.00 568,841.00 650,000.00 $ $3,740,000.00 568,841.00 650,000.00 $ $ 3,740,000.00 $568,841.00 $650,00o.00 $ $3,740,000.00 568,841.00 650,000.00 $ $3,740,000.00 568,841.00 650,000.00 $ $3,740,000.00 568,841.00 650,000.00 $ $3,740,000.00 568,841.00 650,000.00 $ $3,740,000.00 $568,841.00 650,000.00 $ 3,740,000.00 $ 568,841.00 $650,000.00 $ $ 3,740,000.00 $568,841.00 650,000o.00 $ 3,740,000.00 $568,841.00 $650,000.00 $ 3,740,000.00 $ 568,841.00 $650,000.00 2,521,159.00 $579,866.57 $ 1,941,292.43 $ 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $ 2,591, 292.43 2,521,159.00 $579,866.57 $ 1,941,292.43 $ 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $ 2,591, 292.43 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $2,591, 292.43 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $2,591, 292.43 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $2,591, 292.43 2,521,159.00 $579,866.57 1,941, 292.43 $ 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $2,591, 292.43 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $2,591, 292.43 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $2,591, 292.43 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $ 2,591, 292.43 2,521,159.00 $579,866.57 $1,941,292.43 $ 2,521,159.00$579,866.57 $ 1,941,292.43 $ 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $2,591, 292.43 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $2,591, 292.43 2,521,159.00$579,866.57 $ 1,941,292.43 $ 2,521,159.00 $579,866.57 $ 1,941,292.43 $ 650,000.00 2,591,292.43 2,521,159.00 $579,866.57 $1,941,292.43 $ 2,521,159.00 $579,866.57 $ 1,941, 292.43 $ 650,000.00 $2,591,292.43 0.8929 $ 0.7972 $ 1 Cash Inflow Year 1 2,313,653.96 1 2 Cash Inflow Year 2 4 2 2,065,762.46 650,000.00 $ 2,591,292.43 0.7118 $ 3 Cash Inflow Year 3 5 1,844,430.77 4 Cash Inflow Year 4 5 Cash Inflow Year 5 0.6355 S 0.5674 $ 6 4 1,646,813.19 7 5 1,470,368.92 0.5066 $ 6 Cash Inflow Year 6 7 Cash Inflow Year 7 8 Cash Inflow Year 8 9 Cash Inflow Year 9 10 Cash Inflow Year 10 11 Cash Inflow Year 11 12 Cash Inflow Year 12 13 Cash Inflow Year 13 14 Cash Inflow Year 14 8 6 1,312,829.39 9 7 0.4523 1,172,169.10 1,046,579.55 934,446.03 650,000.00 2,591,292.43 0.4039 $ 0.3606 $ 0.3220 $ 10 8 11 9 12 10 834,326.81 0.2875 $ 13 11 744,934.65 0.2567 $ 0.2292 $ 0.2046 $ 14 12. 665,120.23 650,000.00 $2,591, 292.43 650,000.00 $ 2,591,292.43 15 13 593,857.34 16 14 530,229.77 15 Cash Inflow Year 15 0.1827 $ 0.1631 $ 17 15 473,419.44 16 Cash Inflow Year 16 422,695.93 18 16 17 Cash Inflow Year 17 650,000.00 $ 2,591,292.43 0.1456 $ 0.1300 $ 377,407.08 19 17 18 Cash Inflow Year 18 $ $ $3,740,000.00 568,841.00 650,000.00 $ 3,740,000.00 $ 568,841.00 $ 650,000.00$ 336,970.61 20 18 19 Cash Inflow Year 19 650,000.00 $ 2,591, 292.43 650,000.00 $ 2,591,292.43 0.1161 S 21 19 300,866.61 20 Cash Inflow Year 20 0.1037 $ 268,630.90 22 20 Total of discounted cash Inflows - (A) -SUM(03:022) 19,355,512.72 23 21 0Initial Investment $13,000,000.00 1.0000 $ 13,000, 000.00 24 22 Total of Cash Outflows - (B) 13,000,000.00 25 23 Net Present value of the Project (A) - (B) 26 24 6,355,512.72 27