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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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
This alternative involves purchasing new aquaculture equipment for $500,000, with a forecasted useful life of 10 years, to replace old equipment that could be disposed of at an estimated salvage value of $60,000. If GBEI acquires the new equipment, it could take on a bigger service area that was not previously feasible, thus leading to an annual increase in sales of $200,000. With the improvements in technology built into the equipment, GBEI’s annual operating expenses would be reduced by $100,000. Operation of the new equipment would require GBEI to maintain inventory levels $100,000 higher than usual over the life of the project. The new equipment could be sold at the end of its useful life for $40,000. Assume straight line depreciation. Assume gross margin on incremental revenues is 60%. The cost of capital for this investment is 11.65%. 1. Calculate the NPV, Payback Period, and Profitability Index of the purchase of the new aquaculture equipment.
Raytronics wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1.4 million and will have a salvage value of $200,000 after 8 years. Its use will create an opportunity to increase sales by $650,000 per year and will have operating expenses of $250,000 per year. Corporate income-tax rate is 25%. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, IRR, and ERR if the chamber is kept for 8 years. After-tax MARR is 10%. Use MACRS-GDS(5) with 100% bonus depreciation.
Auto Motors Plc is a listed automotive company financed by a mixture of debt and equity. The company’s finance department is about to undertake its annual revision of the weighted average cost of capital (WACC) for use in all of the company’s investment appraisals for the forthcoming year. The following information on the company’s long-term financing was available as at 31 May 2023. £m 220 million ordinary shares of 25 pence each 55 Share premium 23 Revaluation reserve 26 Retained earnings 33 12% loan stock (2025) 100 The loan stock interest for the year has just been paid. Interest on this loan will be paid on 31 May 2024 and 2025. On 31st of May 2025,…
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 16.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.71 million per year and increased operating costs of $775,814.00 per year. Caspian Sea Drinks' marginal tax rate is 20.00%. The incremental cash flows for produced by the RGM-7000 are _____.
Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $2,000,000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1.2 million. Thus, in year 9 the investment cash inflow totals $3,200,000. Calculate the project's NPV using a discount rate of 10%. If the discount rate is 10%, then the project's NPV is $____________
Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $27.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.43 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.30 million per year and cost $2.46 million per year over the 10-year life of the project. Marketing estimates 13.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 33.00%. The WACC is 12.00%. Find the IRR (internal rate of return).
Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $445,000 is estimated to result in $160,000 in annual pretax cost savings. The press qualifies for 100 percent bonus depreciation, and it will have a salvage value at the end of the project of $40,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $2,800 in inventory for each succeeding year of the project. The shop's tax rate is 22 percent and its discount rate is 9 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Should the company buy and install the machine press? Yes ........... No
Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $9,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $2,000,000 per year for each of the next 6 years. In year 6 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1 million. Thus, in year 6 the investment cash inflow totals $3,000,000. Calculate the project's NPV using a discount rate of 7 percent.
Cor's Dog House is considering the installation of a new computerized pressure cooker for hot dogs. The cooker will increase sales by $10,100 per year and will cut annual operating costs by $11,750. The new system will also prompt a $4,900 increase in net working capital. The system will cost $60,200 to purchase and install. This system is expected to have a 4-year life and will be depreciated to zero using straight-line depreciation and have no salvage value. The tax rate is 21 percent and the required return is 10.5 percent. What is the NPV of purchasing the pressure cooker? OCF = $ CFO = S CF4=$ NPV = It It It It It 11 11
Lukow Products is investigating the purchase of a piece of automated equipment that will save $130,000 each year in direct labor and inventory carrying costs. This equipment costs $780,000 and is expected to have a 6-year useful life with no salvage value. The company's required rate of return is 10% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the net present value of the piece of equipment before considering its intangible benefits? Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount. 2. What minimum dollar value per year must be provided by the equipment's intangible benefits to justify the $780,000 investment? Note: Do not round…
The Baltic Company is considering the purchase of a new machine tool to replace an obsolete one. The machine being used for the operation has a current book value of $80,000, with an annual depreciation expense of $8,000. It has a resale value today of $40,000, is in good working order, and will last, physically, for at least 10 more years. The proposed machine will perform the operation so much more efficiently that Baltic engineers estimate that labor, material, and other direct costs of the operation will be reduced $60,000 a year if it is installed. The proposed machine costs $240,000 delivered and installed, and its economic life is estimated at 10 years, with zero salvage value. The company expects to earn 14 percent on its investment after taxes (14 percent is the firm's cost of capital). The tax rate is 22 percent, and the firm uses straight-line depreciation. Any gain or loss on the sale of the machine at retirement is subject to tax at 40 percent. Would it be better…

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