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 allow Caspian Sea Drinks to expand production. It will cost $13.00 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 $3.37 million per year and increased operating costs of $656,978.00 per year. Caspian Sea Drinks' marginal tax rate is 35.00%. If Caspian Sea Drinks uses a 9.00% discount rate, then the net present value of the RGM-7000 is _____.

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

2.Caspian Sea Drinks' is financed with 62.00% equity and the remainder in debt. They have 10.00-year, semi-annual pay, 5.47% coupon bonds which sell for 97.10% of par. Their stock currently has a market value of $25.44 and Mr. Bensen believes the market estimates that dividends will grow at 3.56% forever. Next year’s dividend is projected to be $2.85. Assuming a marginal tax rate of 30.00%, what is their WACC (weighted average cost of capital)?

Answer 1

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