1. The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has a cost of $160,000. The project will produce 950 cases of mineral water per year indefinitely. The current sales price is $134 per case, and the current cost per case is $101. The firm is taxed at a rate of 37%. Both prices and costs are expected to rise at a rate of 5% per year. The firm uses only equity, and it has a cost of capital of 16%. Assume that cash flows consist only of after-tax profits, since the spring has an indefinite life and will not be depreciated.

WhatistheNPVoftheproject?Donotroundintermediatesteps.Roundyouranswertothenearesthundreddollars.(Hint:Theprojectisag rowingperpetuity,soyoumustusetheconstantgrowthformulatofinditsNPV.)

2. The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer, purchased just 2 years ago, is being depreciated on a straight-line basis and has 6 years of remaining life. Its current book value is $1,800, and it can be sold on an Internet auction site for $4,500 at this time. Thus, the annual depreciation expense is $1,800/6=$300 per year. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life.

Gilbert is considering purchasing theSide Steamer 3000, a higher-end steamer, which costs $7,900, and has an estimated useful life of 6 years with an estimated salvage value of $790. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and would allow for an output expansion, so sales would rise by $2,000 per year; even so, the new machine's much greater efficiency would reduce operating expenses by $1,600 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 40%, and its WACC is 16%. Should it replace the old steamer?

What is the NPV of the project? Round your answer to the nearest dollar.

3.St. Johns River Shipyards's welding machine is 15 years old, fully depreciated, obsolete, and has no salvage value. However, even though it is obsolete, it is perfectly functional as originally designed and can be used for quite a while longer. The new welder will cost $84,000, and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $26,000 to $52,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40%, and the firm's WACC is 11%. Should the old welder be replaced by the new one?

What is the NPV of the project? Round your answer to the nearest dollar.