Question
1.) 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
1.)
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 $3.19 million per year and increased operating costs of $751,198.00 per year. Caspian Sea Drinks' marginal tax rate is 34.00%. The internal rate of return for the RGM-7000 is _____.
2.)
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 20 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.69 million per year and increased operating costs of $614,842.00 per year. Caspian Sea Drinks' marginal tax rate is 24.00%. If Caspian Sea Drinks uses a 8.00% discount rate, then the net present value of the RGM-7000 is _____.
3.)
Caspian Sea Drinks' is financed with 66.00% equity and the remainder in debt. They have 11.00-year, semi-annual pay, 5.27% coupon bonds which sell for 98.63% of par. Their stock currently has a market value of $25.91 and Mr. Bensen believes the market estimates that dividends will grow at 3.93% forever. Next years dividend is projected to be $2.52. Assuming a marginal tax rate of 20.00%, what is their WACC (weighted average cost of capital)?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started