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#3

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 $2.73 million per year and increased operating costs of $646,303.00 per year. Caspian Sea Drinks' marginal tax rate is 24.00%. If Caspian Sea Drinks uses a 9.00% discount rate, then the net present value of the RGM-7000 is _____.

#4

Caspian Sea Drinks' is financed with 61.00% equity and the remainder in debt. They have 10.00-year, semi-annual pay, 5.39% coupon bonds which sell for 97.34% of par. Their stock currently has a market value of $24.02 and Mr. Bensen believes the market estimates that dividends will grow at 3.29% forever. Next years dividend is projected to be $2.16. Assuming a marginal tax rate of 20.00%, what is their WACC (weighted average cost of capital)?