Question

#20 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 $15.00 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 $3.67 million per year and increased operating costs of $579,799.00 per year. Caspian Sea Drinks' marginal tax rate is 20.00%. If Caspian Sea Drinks uses a 12.00% discount rate, then the net present value of the RGM-7000 is _____.

Answer format: Currency: Round to: 2 decimal places.

#21 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 15.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.27 million per year and increased operating costs of $678,961.00 per year. Caspian Sea Drinks' marginal tax rate is 23.00%. The incremental cash flows for produced by the RGM-7000 are _____.

Answer format: Currency: Round to: 2 decimal places.

Answer 1

20) Statement showing NPV

Particulars	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	NPV = sum of PV
Cost of new equipment	-15000000
Additional revenue		3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000	3670000
Increased operating costs		-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799	-579799
Depreciation		-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000	-750000
PBT		2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201	2340201
Tax @ 20%		468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040	468040
PAT		1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161	1872161
Add: Depreciation		750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000	750000
Annual cash flow		2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161
Total cash flow	-15000000	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161	2622161
PVIF @ 12%	1	0.8929	0.7972	0.7118	0.6355	0.5674	0.5066	0.4523	0.4039	0.3606	0.3220	0.2875	0.2567	0.2292	0.2046	0.1827	0.1631	0.1456	0.1300	0.1161	0.1037
PV	-15000000	2341215.00	2090370.54	1866402.26	1666430.59	1487884.46	1328468.27	1186132.38	1059046.77	945577.47	844265.60	753808.57	673043.37	600931.58	536546.05	479058.97	427731.23	381902.88	340984.72	304450.64	271830.93	4586082.27

Thus NPV = 4586082.27 $

21) Statement showing incremental cash flow generated

Particulars	0	1 to 15 years
Cost of new equipment	-12000000
Additional revenue		3270000.00
Increased operating costs		-678961.00
Depreciation		-800000.00
PBT		1791039.00
Tax @ 23%		411938.97
PAT		1379100.03
Add: Depreciation		800000.00
Annual cash flow		2179100.03
Total cash flow	-12000000	2179100.03

Thus incremental revenues = $2179100.03