Question

1)Geller Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $510,000 is estimated to result in $210,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $86,000. The press also requires an initial investment in spare parts inventory of $24,000, along with an additional $2,900 in inventory for each succeeding year of the project. The shop’s tax rate is 24 percent and the project's required return is 8 percent. Refer to Table 8.3. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV

2)

Squirrel Spring Water, Inc., expects to sell 2.95 million bottles of drinking water each year in perpetuity. This year, each bottle will sell for $2.00 in real terms and will cost $1.05 in real terms. Sales income and costs occur at year-end. Revenues will rise at a real rate of 5 percent annually, while real costs will rise at a real rate of 4 percent annually. The real discount rate is 11 percent. The corporate tax rate is 25 percent.

What is the company worth today? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Value of the Firm:

Answer 1