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 $3.10 million per year and increased operating costs of $714,187.00 per year. Caspian Sea Drinks' marginal tax rate is 32.00%. The internal rate of return for the RGM- 7000 is

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 $3.10 million per year and increased operating costs of $714,187.00 per year. Caspian Sea Drinks' marginal tax rate is 32.00%. The internal rate of return for the RGM- 7000 is

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $697,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a market value of $192,000 at the end of the project. The project requires $62,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $187,600 a year. What is the net present value of this project if the relevant discount rate is 14 percent and the tax rate is 21 percent? Multiple Choice -$19,132 -$3,975 -$16,142 -$22,893 -$21,257
The Logan Well Services Group is considering two sites for storage and recovery of reclaimed water. The mountain site (MS) will use injection wells that cost $4.2 million to develop and $280,000 per year for M&O. This site will be able to accommodate 150 million gallons per year. The valley site (VS) will involve recharge basins that cost $11 million to construct and $400,000 per year to operate and maintain. At this site, 720 million gallons can be injected each year. If the value of the injected water is $3.00 per thousand gallons, which alternative, if either, should be selected according to the B/C ratio method? Use an interest rate of 8% per year and a 20-year study period. The B/C ratio is . Select alternative (Click to select) neither of the alternatives mountain site valley site .
Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance. The number of potential IRRs that exist for Rearden's mining operation is equal to: O A. 2 OB. 1 O C. 12 O D. 0 C
Woodland Furniture (WF) is a firm producing wooden furniture for household uses. WG is now considering constructing a new production facility in Indonesia. The existing production facility will be closed if the project is to go ahead. The facility will be built on a piece of land located in the forest that WF has just purchased at $10 million for the purpose. The land is expected to be worth $2 million at the end of the project. WF uses a ten-year planning horizon for all of its capital budgeting decisions. The production facility will be constructed at a cost of $12 million. It will be depreciated at its full costs on a straight-line basis over its estimated useful life of 10 years, and its salvage value is $4 million. Machinery will also be purchased at a cost of $6 million. The machinery will also be depreciated at its full costs on a straight-line basis over its estimated useful life of 10 years. Its salvage value is $500,000. In addition, an initial investment of $2 million…
Glow Limited is considering expanding its production capacity with the installation of newequipment that will cost $950 000. This equipment is expected to have a useful life of 8 years,when it will be disposed of at a scrap value of $25 000.Import duties on the equipment would amount to 2% of purchase price. Installation and testingcosts would be $15 000. To support the expanded capacity, net working capital would have to beincreased by $29 000. The new equipment would result in annual net operating cash inflows of$300 000.Glow Limited’s cost of capital is 16% and the tax rate is 25%.A. Compute initial, annual and terminal after-tax cash flows. B. Use the NPV method to advise Happy Limited on the effect that installing the new equipment will have on the value of the firm.
Vigour Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardio vascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Vigour Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual…
please show work i need to learn this. Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $7,000,000 to buy the machine and $10,000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise revenues by $3,000,000 per year, starting at the end of the first year, with associated costs (other than depreciation) of $1 million for each of those years. The machine is expected to have a working life of six years and will be depreciated over those six years. The marginal tax rate is 20%. What are the incremental free cash flows associated with the new machine in year 2? O $1,168,333 $831,667 $1,833,667 $1,165,000 O $665,334
Vigour Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardio vascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Vigour Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual…
Mersey Chemicals manufactures polypropylene that it ships to its customers via tank car. Currently it plans to add two additional tank cars to its fleet four years from now. However, a proposed plant expansion will require Mersey's transport division to add these two additional tank cars in 1 years' time rather than in 4 years. The current cost of a tank car is $1.9 million, and this cost is expected to remain constant. Also, while tank cars will last indefinitely, they will be depreciated straight-line over a five-year life for tax purposes. Suppose Mersey's tax rate is 20%. When evaluating the proposed expansion, what incremental free cash flows should be included to account for the need to accelerate the purchase of the tank cars? Incremental FCF for year 0 is how much? (Round to two decimal places and outflows as negative values.)
Vigour Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardio vascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Vigour Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual…
A chemical company is planning to release a new brand of insecticide that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost $15 million. The equipment is expected to have a lifetime of nine years and will be depreciated by the straight-line method over its lifetime. The firm expects that they should be able to sell 1,400,000 gallons per year at a price of $65 per gallon. It will take $36 per gallon to manufacture and support the product. If the company's marginal tax rate is 40%, what are the incremental earnings after tax in year 3 of this project? $23.36 million $9.58 million $12.72 million $15.30 million $14.30 million $24.36 million

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