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This year, Argo Brewery sells five tons of its alcoholic drink for a net profit of $ 2 5 4 , 0 0 0 .

This year, Argo Brewery sells five tons of its alcoholic drink for a net profit of $254,000.00.
Leon, the CEO of the company, foresees a sharp growth in the demand for Argo Brewerys
alcoholic drink next year so he decides to expand the companys brewing capacity. First,
he decides that the current brewing machine must be replaced with a bigger one. The selling
of the current machine will incur $35,000.00 of after-tax proceeds. Leon also thinks that
the company must prepare additional $18,000.00 working capital in order to operate the
new machine. Argo Brewery has a depreciation expense of $63,500.00 and, at the end of
the year, the total amount of fixed assets is estimated to be $452,500.00, increasing from
the $295,000.00 of the previous year. The companys marginal tax rate is 35 percent. How
much does Argo Brewerys capital expenditure increase this year?

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