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 $12.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.14 million per year and increased operating costs of $688,290.00 per year. Caspian Sea Drinks' marginal tax rate is 24.00%. The internal rate of return for the RGM-7000 is _____.

Round to 4 decimal places, % sign required

Answer 1

IRR =

15.0312%

Workings

Year	Cost of new machine	Tax shield- depreciation	(Sales-cost) after tax	Net CF
0	-12000000			-12000000
1		192000	1863299.6	2055299.6
2		192000	1863299.6	2055299.6
3		192000	1863299.6	2055299.6
4		192000	1863299.6	2055299.6
5		192000	1863299.6	2055299.6
6		192000	1863299.6	2055299.6
7		192000	1863299.6	2055299.6
8		192000	1863299.6	2055299.6
9		192000	1863299.6	2055299.6
10		192000	1863299.6	2055299.6
11		192000	1863299.6	2055299.6
12		192000	1863299.6	2055299.6
13		192000	1863299.6	2055299.6
14		192000	1863299.6	2055299.6
15		192000	1863299.6	2055299.6