1a

A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,219.00 to install, $5,118.00 to operate per year for 7 years at which time it will be sold for $7,062.00. The second, RayCool 8, costs $41,561.00 to install, $2,098.00 to operate per year for 5 years at which time it will be sold for $8,962.00. The firms cost of capital is 5.55%. What is the equivalent annual cost of the RayCool8? Assume that there are no taxes.

Answer format: Currency: Round to: 2 decimal places.

1b

Caspian Sea Drinks is considering the purchase of a plum juicer the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the IRR of the PJX5?

a. The PJX5 will cost $2.49 million fully installed and has a 10 year life. It will be depreciated to a book value of $143,957.00 and sold for that amount in year 10.

b. The Engineering Department spent $14,514.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $20,963.00.

d. The PJX5 will reduce operating costs by $463,988.00 per year.

e. CSDs marginal tax rate is 20.00%.

f. CSD is 70.00% equity-financed.

g. CSDs 13.00-year, semi-annual pay, 5.57% coupon bond sells for $1,040.00.

h. CSDs stock currently has a market value of $22.40 and Mr. Bensen believes the market estimates that dividends will grow at 2.01% forever. Next years dividend is projected to be $1.79.

Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

1c.

A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firms production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $25,718.00 per year for 8 years and costs $101,612.00. The UGA-3000 produces incremental cash flows of $27,318.00 per year for 9 years and cost $126,555.00. The firms WACC is 7.29%. What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes.

Answer format: Currency: Round to: 2 decimal places.