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 $14.00 million fully installed and will be fully depreciated over a 17.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.84 million per year and increased operating costs of $659,526.00 per year. Caspian Sea Drinks' marginal tax rate is 33.00%. The incremental cash flows for produced by the RGM-7000 are _____.

ROUND TO 2 DECIMALS

Answer 1

Annual depreciation under SLM
Cost of equipment			14000000
Divide: Life of assets			17
Annual depreciation under SLM			823529.4
Incremental cashflows
Incremental revenue			2840000
Less: Incremental cost			659526
Less: Depreciation			823529.4
Net Income before tax			1356945
Less: tax @ 33%			447791.7
After tax Income			909152.9
Add: Depreciation			823529.4
Incremental cashflows			1732682
Answer is $ 1732682.