Modern Energy Company owns several gas stations. Management is looking to open a new station in the western suburbs of Baltimore. One possibility they are evaluating is to take over a station located at a site that has been leased from the county. The lease, originally for 99 years, currently has 73 years before expiration. The gas station generated a net cash flow of $87,180 last year, and the current owners expect an annual growth rate of 6.3 percent. If Modern Energy uses a discount rate of 16.6 percent to evaluate such businesses, what is the present value of this growing annuity? (Round PV factor calculations to 6 decimal places, e.g. 1.521253 and final answer to 2 decimal places, e.g. 15.25.) Present value

Modern Energy Company owns several gas stations. Management is looking to open a new station in the western suburbs of Baltimore. One possibility they are evaluating is to take over a station located at a site that has been leased from the county. The lease, originally for 99 years, currently has 73 years before expiration. The gas station generated a net cash flow of $87,180 last year, and the current owners expect an annual growth rate of 6.3 percent. If Modern Energy uses a discount rate of 16.6 percent to evaluate such businesses, what is the present value of this growing annuity? (Round PV factor calculations to 6 decimal places, e.g. 1.521253 and final answer to 2 decimal places, e.g. 15.25.) Present value

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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#34 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 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.96 million per year and increased operating costs of $689,148.00 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)) unanswered not_submitted Attempts Remaining: Infinity
# 35 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 $2.98 million per year and increased operating costs of $579,459.00 per year. Caspian Sea Drinks' marginal tax rate is 20.00%. 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. unanswered not_submitted Attempts Remaining: Infinity
#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 $12.00 million fully installed and will be fully depreciated over a 17.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.64 million per year and increased operating costs of $779,569.00 per year. Caspian Sea Drinks' marginal tax rate is 23.00%. The incremental cash flows for produced by the RGM-7000 are _____. Answer format: Currency: Round to: 2 decimal places.
#3 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 $2.77 million per year and increased operating costs of $564,995.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. If Caspian Sea Drinks uses a 12.00% discount rate, then the net present value of the RGM-7000 is _____. Answer format: Currency: Round to: 2 decimal places.
QUESTION 5 A company is thinking about marketing a new product. Up- front costs to market and develop the product are $11.83 Million. The product is expected to generate profits of $1.48 million per year for 29 years. The company will have to provide product support expected to cost $271554 per year in perpetuity. Furthermore, the company expects to invest $31163 per year for 10 years for renovations on the product. This investing would start at the end of year 7. Assume all profits and expenses occur at the end of the year. Calculate the NPV of this project if the interest rate is 7.66%.
#4 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 $28.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.23 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.78 million per year and cost $2.27 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 34.00%. The WACC is 15.00%. Find the IRR (internal rate of return). 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))
QUESTION 5 A company is thinking about marketing a new product. Up-front costs to market and develop the product are $14.56 Million. The product is expected to generate profits of $1.39 million per year for 26 years. The company will have to provide product support expected to cost $294051 per year in perpetuity. Furthermore, the company expects to invest $40821 per year for 11 years for renovations on the product. This investing would start at the end of year 7. Assume all profits and expenses occur at the end of the year. Calculate the NPV of this project if the interest rate is 7.45%. NOTE: Answer in $. If your answer is 220M, you must answer 220000000.0000. HINT. Compute the present value of all cash flows and then combine them.
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QUESTION 10 Georgia Mills Company (GMC) purchase a milling machine, which it intends to use for the next five years, for $180,000. This machine is expected to save GMC $35,000 during the first operating year. Then, the annual savings are expected to decrease by 3% each subsequent year over the previous year due to increased maintenance costs. Assuming that GMC would operate the machine for an average of 5,000 hours per year and that the machine would have no appreciable salvage value at the end of the five year period, determine the equivalent dollar savings per operating hour at 15% interest compounded annually. OA $3.24 lost per hour OB. $4.09 lost per hour OC $6.74 lost per hour D.$5.92 lost per hour
#3 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 $26.00 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 $1.32 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.51 million per year and cost $2.14 million per year over the 10-year life of the project. Marketing estimates 11.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 32.00%. The WACC is 13.00%. Find the NPV (net present value). Answer format: Currency: Round to: 2 decimal places.
QUESTION 1 Frank Einstein Co. is a firm that specializes in selling Halloween decorations. It is evaluating a new project that requires an initial investment of $1.42 million. The asset will be depreciated to zero over its 3-year life. The company's analysts estimate that in the first year, the project will generate $1.09 million in revenues. The revenue will increase by 7% per year in the following two years. The costs in the first year will be $475,000 and they will increase by 5% per year thereafter. The corporate tax rate is 25% and the required return is 12%. What is the NPV of the project?
#3 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 $26.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.04 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.16 million per year and cost $1.82 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 33.00%. The WACC is 15.00%. Find the NPV (net present value). Submit Answer format: Currency: Round to: 2 decimal places.