Question

round to 4 decimal places and answer them all pleaseeeee

23

Caspian Sea Drinks' is financed with 68.00% equity and the remainder in debt. They have 11.00-year, semi-annual pay, 5.78% coupon bonds which sell for 97.07% of par. Their stock currently has a market value of $25.15 and Mr. Bensen believes the market estimates that dividends will grow at 3.48% forever. Next year’s dividend is projected to be $2.16. Assuming a marginal tax rate of 28.00%, what is their WACC (weighted average cost of capital)?

#2 Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the NPV of the PJX5?

a. The PJX5 will cost $1.92 million fully installed and has a 10 year life. It will be depreciated to a book value of $233,086.00 and sold for that amount in year 10.

b. The Engineering Department spent $40,415.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $16,819.00.

d. The PJX5 will reduce operating costs by $325,548.00 per year.

e. CSD’s marginal tax rate is 36.00%.

f. CSD is 62.00% equity-financed.

g. CSD’s 18.00-year, semi-annual pay, 5.56% coupon bond sells for $1,043.00.

h. CSD’s stock currently has a market value of $23.40 and Mr. Bensen believes the market estimates that dividends will grow at 2.92% forever. Next year’s dividend is projected to be $1.46.

#3 A firm issues preferred stock with a dividend of $4.69. If the appropriate discount rate is 7.76% what is the value of the preferred stock?

#4 A firm will pay a dividend of $3.10 next year. The dividend is expected to grow at a constant rate of 3.25% forever and the required rate of return is 13.88%. What is the value of the stock?

Answer 1