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 $13.00 million fullyinstalled and will be fully depreciated over a 16.00 year life, then removed for no cost. The RGM-7000 will result inadditional revenues of $3.09 million per year and increased operating costs of $680,871.00 per year. Caspian SeaDrinks' marginal tax rate is 33.00%. The incremental cash flows for produced by the RGM-7000 areSubmitAnswer format: Currency: Round to: 2 decimal places.

Asset cost$1,30,00,000.00Life 16Additional revenue$30,90,000.00Increased…

Answered: Caspian Sea Drinks is considering the…

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

See similar textbooks

Similar questions

Consider the following project of Hand Clapper, Incorporated. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $14 million that will be depreciated straight- line to zero over the project's life. An initial investment in net working capital of $590,000 is required to support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $11.6 million in pretax revenues with $4.4 million in total pretax operating costs. The tax rate is 21 percent and the discount rate is 11 percent. The market value of the equipment over the life of the project is as follows: Year Market Value (millions) a. 1 $ 11.2 9.1 234 4.9 1.3 Assuming the company operates this project for four years, what is the NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. Compute…
U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $14 million now and another $10 million 1 year from now. If total operating costs will be $1.3 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 9 to recover its investment plus a return of 23% per year? The company must make $ 7.560 million annually in years 1 through 9 to recover its investment plus a return of 23% per year
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 $13.00 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 $3.37 million per year and increased operating costs of $612,883.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. The internal rate of return for the RGM-7000 is 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))
The ABC Ltd is analysing the costs and benefits of setting up an extra fast-food outlet in Adelaide. The predicted costs and income flows are provided below: $2 million site acquisition and development costs. The capital depreciation expense is $50,000 per year. Investment in plant and equipment of $600,000. The plant and equipment have an estimated useful life of 5 years and the residual value would be zero. The plant and equipment will be depreciated on a straight-line basis for tax purposes. The forecasted sales in year 1 is $600,000 and $800,000 per year thereafter. Labour and material costs are equivalent to 50 per cent of incremental sales. The policy (objective) is to sell the outlet at the end of year 3. The estimated selling price is $3.5 million. Sales in a similar outlet of ABC Ltd will decline by $80,000 per year due to loss of customers and experienced staff to the new venture. Other operating costs are about $150,000 per year (fixed) The net working capital requirement at…
Baghiben
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 $28.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.30 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.20 million per year and cost $1.77 million per year over the 10-year life of the project. Marketing estimates 12.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 24.00%. The WACC is 12.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.
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 $13.00 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 $3.89 million per year and increased operating costs of $548,726.00 per year. Caspian Sea Drinks' marginal tax rate is 32.00%. If Caspian Sea Drinks uses a 8.00% discount rate, then the net present value of the RGM-7000 is _____. (ROUND TO 4 DECIMAL PLACES)
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 $28.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.29 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.46 million per year and cost $1.84 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 22.00%. The WACC is 15.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.
Sarasota Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $450,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $78,750. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Click here to view PV tables. How much would the reduction in downtime have to be worth in order for the project to be acceptable? Sarasota's discount rate is 10%. (Use the above table.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 5,275.) Reduction in downtime would have to have a present value $
Firm Z has invested $4 million in marketing campaign to assess the demand for the product Minish. This product will be in the market next year and will last five years. Revenues are projected to be $50 million per year along with expenses of $20 million. The firm spends $15 million immediately on equipment that will be depreciated using MACRS depreciation to zero. Additionally, it will use some fully depreciated existing equipment that has a market value of $4 million. Finally, Minish will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). But, receivables are expected to account for 15% of annual sales. Payables are expected to be 15% of the annual cost of goods sold (COGS) between year 1 and year 4. All accounts payables and receivables will be settled at the end of year 5. Based on this information and WACC in the first part of the question, find the NPV of the project. Identify the IRR of the…
Abbott Mining Systems wants to determine whether it should upgrade a piece of equipment used in deep mining operations in one of its international operations now or later. If the com- pany selects plan A, the upgrade will be purchased now for $200,000. However, if the com- pany selects plan 1, the purchase will be deferred for 3 years when the cost is expected to rise to $300,000. Abbott is ambitious; it expects a real MARR of 12% per year. The inflation rate in the country has averaged 3% per year. From only an economic perspective, determine whether the company should purchase now or later (a) when inflation is not considered and (b) when inflation is considered.
GeoSourcex is considering opening a new titanium mine. Once in operation, the mine is expected to produce positive net cash flows in perpetuity starting 3 years from now at $19.5 million per year but declining at a constant rate of 1.8% per year. The costs of getting the mine operational include an immediate payment of $110.0 million to purchase the land and acquire the mineral rights, plus other start -up costs of $10.0 million per year for three years starting in one year. If the project's cost of capital is 10.2% per year (compounded annually) what is the Net Present Value of this new mine?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS