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#2 Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines
#2 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 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.13 million per year and increased operating costs of $675,731.00 per year. Caspian Sea Drinks' marginal tax rate is 22.00%. The internal rate of return for the RGM-7000 is unanswered not_submitted Attempts Remaining: Infinity Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434)) #3 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 $3.58 million per year and increased operating costs of $624,355.00 per year. Caspian Sea Drinks' marginal tax rate is 35.00%. If Caspian Sea Drinks uses a 8.00% discount rate, then the net present value of the RGM-7000 is unanswered not_submitted Attempts Remaining: Infinity Submit Answer format: Currency: Round to: 2 decimal places.
Expert Solution
| 1) | |||
| Annual operating CashFlow | |||
| Annual Revenue | $ 3,130,000.00 | ||
| Less: Annual Operating Exp. | $ 675,731.00 | ||
| Less: Depreciation | $ 933,333.33 | ||
| Net operating Income | $ 1,520,935.67 | ||
| Less: Tax | $ 334,605.85 | ||
| Net Income | $ 1,186,329.82 | ||
| Add: Depreiciation | $ 933,333.33 | ||
| Net operating Cash Flow | $ 2,119,663.15 | ||
| Year | Cash Flow | ||
| 0 | $ (15,000,000.00) | ||
| 1 | $ 2,119,663.15 | ||
| 2 | $ 2,119,663.15 | ||
| 3 | $ 2,119,663.15 | ||
| 4 | $ 2,119,663.15 | ||
| 5 | $ 2,119,663.15 | ||
| 6 | $ 2,119,663.15 | ||
| 7 | $ 2,119,663.15 | ||
| 8 | $ 2,119,663.15 | ||
| 9 | $ 2,119,663.15 | ||
| 10 | $ 2,119,663.15 | ||
| 11 | $ 2,119,663.15 | ||
| 12 | $ 2,119,663.15 | ||
| 13 | $ 2,119,663.15 | ||
| 14 | $ 2,119,663.15 | ||
| 15 | $ 2,119,663.15 | ||
| IRR of RGM -7000 | 11.2916% | ||
| 2) | |||
| Annual operating CashFlow | |||
| Annual Revenue | $ 3,580,000.00 | ||
| Less: Annual Operating Exp. | $ 624,355.00 | ||
| Less: Depreciation | $ 700,000.00 | ||
| Net operating Income | $ 2,255,645.00 | ||
| Less: Tax | $ 789,475.75 | ||
| Net Income | $ 1,466,169.25 | ||
| Add: Depreiciation | $ 700,000.00 | ||
| Net operating Cash Flow | $ 2,166,169.25 | ||
| Year | Cash Flow | Discount Rate 8% | Present Value |
| 0 | $ (15,000,000.00) | 1 | $ (15,000,000.00) |
| 1 | $ 2,166,169.25 | 0.92593 | $ 2,005,712.27 |
| 2 | $ 2,166,169.25 | 0.85734 | $ 1,857,140.99 |
| 3 | $ 2,166,169.25 | 0.79383 | $ 1,719,574.99 |
| 4 | $ 2,166,169.25 | 0.73503 | $ 1,592,199.06 |
| 5 | $ 2,166,169.25 | 0.68058 | $ 1,474,258.39 |
| 6 | $ 2,166,169.25 | 0.63017 | $ 1,365,054.07 |
| 7 | $ 2,166,169.25 | 0.58349 | $ 1,263,938.95 |
| 8 | $ 2,166,169.25 | 0.54027 | $ 1,170,313.84 |
| 9 | $ 2,166,169.25 | 0.50025 | $ 1,083,623.93 |
| 10 | $ 2,166,169.25 | 0.46319 | $ 1,003,355.49 |
| 11 | $ 2,166,169.25 | 0.42888 | $ 929,032.86 |
| 12 | $ 2,166,169.25 | 0.39711 | $ 860,215.61 |
| 13 | $ 2,166,169.25 | 0.36770 | $ 796,495.94 |
| 14 | $ 2,166,169.25 | 0.34046 | $ 737,496.24 |
| 15 | $ 2,166,169.25 | 0.31524 | $ 682,866.89 |
| 16 | $ 2,166,169.25 | 0.29189 | $ 632,284.16 |
| 17 | $ 2,166,169.25 | 0.27027 | $ 585,448.29 |
| 18 | $ 2,166,169.25 | 0.25025 | $ 542,081.75 |
| 19 | $ 2,166,169.25 | 0.23171 | $ 501,927.55 |
| 20 | $ 2,166,169.25 | 0.21455 | $ 464,747.73 |
| Net Present Value | $ 6,267,769.01 |
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