Question

838 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 $12.00 million fully installed and will be fully depreciated over a 16.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.70 million per year and increased operating costs of $618,750.00 per year. Caspian Sea Drinks' marginal tax rate is 30.00%. The incremental cash flows for produced by the RGM-7000 are Submit Answer format: Currency: Round to: 2 decimal places.

Answer 1

Equip ment cost =	$12,000,000
intellation cost =	$0
Cost capitalised =	12,000,000.00
Life of machine(years) =	16
Depreciation =	Cost / life in years
	750,000.00

Calculation of incremental cashflows:

	Additional revenue	2,700,000.00
Less	Operating cost	618,750.00
	Profit before DEP	2,081,250.00
Less	Depreciation	$750,000.00
	Net profit	1,331,250.00
Less	Tax @ 30%	399,375.00
	Profit after tax	931,875.00
Add	Depreciation	750,000.00
	Incremental cash flows	$ 1,681,875.00