Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $27.00 million. The plant and equipment will be
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- A Company is considering the development of a plan. The company estimates that the plant and equipment would require an initial of $12 million and sales revenue of $3.0 million a year is expected over the project lifespan of 6 years. The plant and equipment will be fully depreciated using the straight-line method with zero salvage value. Yearly variable costs are $25,000 and fixed costs are $40,000, respectively. The project’s cost of capital is 12% and a corporate tax rate of 30%. Using NPV should this project be undertaken?arrow_forwardU.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened,duplex, and martensitic stainless steel round bars that is expected to cost $16 million nowand another $10 million 1year from now. If total operating costs will be $1.4 million peryear starting 1year from now, and the estimated salvage value of the plant is virtuallyzero, how much must the company make annually in years 1 through 9 to recover itsinvestment plus a return of 17% per year? The companymust make$_______million annually in years1 through9 to recover itsinvestment plus a return of 17% per year.arrow_forwardCaspian 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 15 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 $612,883.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. The internal rate of return for the RGM-7000 is Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))arrow_forward
- Crane Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.85 million. This investment will consist of $2.70 million for land and $9.15 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.05 million, which is $2.50 million above book value. The farm is expected to produce revenue of $2.00 million each year, and annual cash flow from operations equals $1.80 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.) NPV The project should bearrow_forwardIvanhoe Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.85 million. This investment will consist of $2.15 million for land and $9.70 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.25 million, which is $2.00 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.90 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment? (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.)arrow_forwardCaspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $28.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.30 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.20 million per year and cost $1.77 million per year over the 10-year life of the project. Marketing estimates 12.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 24.00%. The WACC is 12.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.arrow_forward
- 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 $3.89 million per year and increased operating costs of $548,726.00 per year. Caspian Sea Drinks' marginal tax rate is 32.00%. If Caspian Sea Drinks uses a 8.00% discount rate, then the net present value of the RGM-7000 is _____. (ROUND TO 4 DECIMAL PLACES)arrow_forwardBlossom Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.80 million. This investment will consist of $2.00 million for land and $9.80 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.00 million, which is $2.00 million above book value. The farm is expected to produce revenue of $2.00 million each year, and annual cash flow from operations equals $1.90 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 5,275.25.) NPV $ The project should bearrow_forwardCaspian 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 16.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $3.09 million per year and increased operating costs of $680,871.00 per year. Caspian Sea Drinks' marginal tax rate is 33.00%. The incremental cash flows for produced by the RGM-7000 are Submit Answer format: Currency: Round to: 2 decimal places.arrow_forward
- Fossa Road Paving Corporation is considering an investment in a curb-forming machine. The machine will cost $240,000, will last 10 years, and will have a $40,000 salvage value at the end of 10 years. The machine is expected to generate net cash inflows of $60,000 per year in each of the 10 years. Fossa's discount rate is 18%. The net present value of the proposed investment is closest to (Ignore income taxes.): Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice $69,640 $37,280 $(48,780) $5,840arrow_forwardFirm Z has invested $4 million in marketing campaign to assess the demand for the product Minish. This product will be in the market next year and will last five years. Revenues are projected to be $50 million per year along with expenses of $20 million. The firm spends $15 million immediately on equipment that will be depreciated using MACRS depreciation to zero. Additionally, it will use some fully depreciated existing equipment that has a market value of $4 million. Finally, Minish will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). But, receivables are expected to account for 15% of annual sales. Payables are expected to be 15% of the annual cost of goods sold (COGS) between year 1 and year 4. All accounts payables and receivables will be settled at the end of year 5. Based on this information and WACC in the first part of the question, find the NPV of the project. Identify the IRR of the…arrow_forwardRealTurf is considering purchasing an automatic sprinkler system for its sod farm by borrowing the entire $30,000 purchase price. The loan would be repaid with four equal annual payments at an interest rate of 12%/year. It is anticipated that the sprinkler system would be used for 9 years and then sold for a salvage value of $2,000. Annual operating and maintenance expenses for the system over the 9-year life are estimated to be $9,000 per year. If the new system is purchased, cost savings of $15,000 per year will be realized over the present manual watering system. RealTurf uses a MARR of 15%/year for economic decision making. Based on a present worth analysis, is the purchase of the new sprinkler system economically attractive?arrow_forward
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