Question

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 $15.00 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 $3.87 million per year and increased operating costs of $585,710.00 per year. Caspian Sea Drinks' marginal tax rate is 27.00%. If Caspian Sea Drinks uses a 9.00% discount rate, then the net present value of the RGM-7000 is _____.

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#4

Caspian Sea Drinks' is financed with 70.00% equity and the remainder in debt. They have 11.00-year, semi-annual pay, 5.60% coupon bonds which sell for 98.45% of par. Their stock currently has a market value of $24.91 and Mr. Bensen believes the market estimates that dividends will grow at 3.75% forever. Next year’s dividend is projected to be $2.86. Assuming a marginal tax rate of 29.00%, what is their WACC (weighted average cost of capital)?

Answer 1

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