Question
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has a cost of $155,000. The project will produce 900
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has a cost of $155,000. The project will produce 900 cases of mineral water per year indefinitely. The current sales price is $135 per case, and the current cost per case is $109. The firm is taxed at a rate of 37%. Both prices and costs are expected to rise at a rate of 4% per year. The firm uses only equity, and it has a cost of capital of 13%. Assume that cash flows consist only of after-tax profits, because the spring has an indefinite life and will not be depreciated.
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