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 19.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.81 million per year and increased operating costs of $605,029.00 per year. Caspian Sea Drinks' marginal tax rate is 27.00%. The incremental cash flows for produced by the RGM-7000 are _____.

Answer 1

Incremental CF = After Tax revenue + Dep

Dep per anum = Cost / Life

= $ 13M / 19

= $ 684210

Incremental CF per anum:

Particulars	Formula	Amount
Revenue	Given	$ 28,10,000.00
Operating Cost	Given	$   6,05,029.00
Dep	Given	$   6,84,211.00
PBT	Rev - OC - Dep	$ 15,20,760.00
Tax	PBT * Tax Rate	$   4,10,605.20
PAT	PBT - Tax	$ 11,10,154.80
After Tax CF	PAT + Dep	$ 17,94,365.80

Incremental CF is $ 1794365.80