Sparkling Water, Inc., expects to sell 3.7 million bottles of drinking watereach year in perpetuity. This year each bottle will sell for $1.46 in real termsand will cost $.82 in real terms. Sales income and costs occur at year-end.Revenues will rise at a real rate of 1.3 percent annually, while real costs willrise at a real rate of 1.2 percent annually. The real discount rate is 8 percent.The corporate tax rate is 25 percent.What is the company worth today?

Variables in the question:No. of bottles expected to be sold each year in perpetuity=3.7…

Answered: Sparkling Water, Inc., expects to sell…

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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It is December 31. Last year, Galaxy Corporation had sales of $80,000,000, and it forecasts that next year's sales will be $86,400,000. Its fixed costs have been-and are expected to continue to be-$44,000,000, and its variable cost ratio is 10.00 %. Galaxy's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT = $X) = Given this information, complete the following sentences: Percentage Change in EPS Percentage Change in EBIT Consider the following statement about DFL, and indicate whether or not it is correct. 0 0 DFL (at EBITSX) = • The company's percentage change in EBIT is . The percentage change in Galaxy's earnings per share (EPS) is • The degree of financial leverage (DFL) at $86,400,000 is. (Hint: Use the changes in EPS…
Appalachian Registers, Inc. (ARI) has current sales of $50 million. Sales are expected to grow to $75 million next year. ARI currently has accounts receivable of $11 million, inventories of $15 million, and net fixed assets of $17 million. These assets are expected to grow at the same rate as sales over the next year. Accounts payable are expected to increase from their current level of $15 million to a new level of $20 million next year. ARI wants to increase its cash balance at the end of next year by $3 million over its current cash balances, which average $4 million. Earnings after taxes next year are forecasted to be $10 million. Next year, ARI plans to pay dividends of $1 million, up from $500,000 this year. ARI’s marginal tax rate is 34 percent. How much external financing is required by ARI next year? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ _____ million ?
Vikram
HS Shipping wants to expand as soon as it can save $112 million. Towards that goal, the firm started saving three years ago and currently has $38.2 million saved. Starting today, the firm will add $15,000 a month to this savings account. The rate of return is 7.1 percent, compounded monthly. How long will it be from now before the company can expand?
Donuts Galore spends $42 million installing donut makers in all its stores. This is expected to increase cash flows by $11.5 million per year for the next seven years. If the discount rate is 5.5%, was Donut Galore correct in making the decision to install donut makers? a. Yes, as it has a net present value (NPV) of $107.35 million. b. No, as it has a net present value (NPV) of – 107.35 million. c. Yes, as it has a net present value (NPV) of $23.35 million. d. No, as it has a net present value (NPV) of -$38.57 million.
Sparkling Water, Incorporated, expects to sell 3.7 million bottles of drinking water each year in perpetuity. This year each bottle will sell for $1.46 in real terms and will cost $.82 in real terms. Sales income and costs occur at year-end. Revenues will rise at a real rate of 1.5 percent annually, while real costs will rise at a real rate of .9 percent annually. The real discount rate is 6 percent. The corporate tax rate is 23 percent. What is the company worth today? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Value of the firm :______________
Peaceful Cruises wants to build a new cruise ship that has an initial investment of $350 million. It is estimated to provide an annual cash flow over the next 15 years of $48 million per year. The discount rate is 9%. What is the discounted payback period? Enter your answer rounded to two decimal places Number
A business sets up a sinking fund so they will have a $68,000.00 to pay for a replacement piece of equipment in 12 years when the current equipment will be sold for scrap. If they make deposits at the end of each quarter for 12 years in the investment that pays 6.3% compounded quarterly, what size should each payment be? Answer: The quarterly payments are $. (Round to the nearest cent/penny)
To provide for the automation of a production process in five years, Dominion Chemicals is starting a sinking fund to accumulate $600,000 by the end of the five years. Sinking fund payments are to be made at the beginning of every month. Round the sinking fund payments and the periodic interest earnings to the nearest dollar.a) If the sinking fund earns 7.5% compounded monthly, what monthly payments starting today should be made to the fund? b) How much interest will be earned in the fourth year? c) In what month will the fund pass the halfway point? d) How much interest will be earned in the 35th month?
Calculate the present value of the cash savings: Samson Inc. is contemplating the purchase of a machine that will provide it with the net after-tax cash savings of $100,000 per year for eight years. Interest is 10%. Assume the cash savings occur at the end of each year.
Company XYZ has annual credit sales of $2,500,000. Collection of the credit sales are evenly spread out over the 250 working days per year. The company’s annual cost of borrowing is 7%. How much would XYZ save each year by improving its receivables process by one day?
Libscomb Technologies' annual sales are $6,974,991 and all sales are made on credit, it purchases $3,511,535 of materials each year (and this is its cost of goods sold). Libscomb also has $550,869 of inventory, $522,928 of accounts receivable, and $477,584 of accounts payable. Assume a 365 day year. What is Libscomb’s Inventory Turnover?

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