Question

Sparkling Water, Inc., expects to sell 3.5 million bottles of drinking water each year in perpetuity. This year each bottle will sell for $1.44 in real terms and will cost $.80 in real terms. Sales income and costs occur at year-end. Revenues will rise at a real rate of 1.3 percent annually, while real costs will rise at a real rate of .8 percent annually. The real discount rate is 5 percent. The corporate tax rate is 21 percent. What is the company worth today? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.)

Answer #1

Sparkling Water, Inc., expects to sell 3.5 million bottles of
drinking water each year in perpetuity. This year each bottle will
sell for $1.44 in real terms and will cost $.80 in real terms.
Sales income and costs occur at year-end. Revenues will rise at a
real rate of 1.3 percent annually, while real costs will rise at a
real rate of .8 percent annually. The real discount rate is 5
percent. The corporate tax rate is 21 percent.
What...

Sparkling Water, Inc., expects to sell 3.7 million bottles of
drinking water each year in perpetuity. This year each bottle will
sell for $1.46 in real terms and will cost $.82 in real terms.
Sales income and costs occur at year-end. Revenues will rise at a
real rate of 1.3 percent annually, while real costs will rise at a
real rate of 1.2 percent annually. The real discount rate is 8
percent. The corporate tax rate is 25 percent.
...

Sparkling Water, Inc.,
expects to sell 3.7 million bottles of drinking water each year in
perpetuity. This year each bottle will sell for $1.46 in real terms
and will cost $.82 in real terms. Sales income and costs occur at
year-end. Revenues will rise at a real rate of 1.5 percent
annually, while real costs will rise at a real rate of .9 percent
annually. The real discount rate is 6 percent. The corporate tax
rate is 25 percent.
...

Sarro Shipping, Inc., expects to earn $1.3 million per year in
perpetuity if it undertakes no new investment opportunities. There
are 120,000 shares of stock outstanding, so earnings per share
equal $10.83 ($1,300,000/120,000). The firm will have an
opportunity at date 1 to spend $1,200,000 on a new marketing
campaign. The new campaign will increase earnings in every
subsequent period by $240,000 (or $ 2 per share). The firm’s
discount rate is 10 percent. What is the value per share...

The Biological Insect Control Corporation (BICC) has hired you
as a consultant to evaluate the NPV of its proposed toad ranch. The
company plans to breed toads and sell them as ecologically
desirable insect control mechanisms. They anticipate that the
business will continue into perpetuity. Following the negligible
start-up costs, the company expects the following nominal cash
flows at the end of the year:
Revenues
$
490,000
Labor costs
239,000
Other costs
88,000
The company will lease machinery...

The Biological Insect Control Corporation (BICC) has hired you
as a consultant to evaluate the NPV of its proposed toad ranch.
BICC plans to breed toads and sell them as ecologically desirable
insect control mechanisms. They anticipate that the business will
continue into perpetuity. Following the negligible start-up costs,
BICC expects the following nominal cash flows at the end of the
year:
Revenues
$
280,000
Labor costs
200,000
Other costs
70,000
The company will lease machinery for $105,000 per year....

1.
Sports utensils inc. makes water bottles for backpackers. Each
water bottle includes a one-year warranty against manufacturing
defects. The Company estimates that 3% of the water bottles sold
will be returned as defective. When in the water bottles or return
the company replaces the water bottle. Each water bottle cost $4 to
produce. In 2016, the company sold 250,000 water bottles. The
warranty expense that the company should record for
2016:
A)
$750
B)
$250,000
C)
$3,000
D)
None...

Overnight Publishing Company (OPC) has $2.8 million in excess
cash. The firm plans to use this cash either to retire all of its
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million. The institution will not charge OPC any transaction costs.
Once OPC becomes an all-equity firm, it will remain unlevered
forever. If OPC does not retire the debt, the company will use...

Overnight Publishing Company (OPC) has $4.5 million in excess
cash. The firm plans to use this cash either to retire all of its
outstanding debt or to repurchase equity. The firm’s debt is held
by one institution that is willing to sell it back to OPC for $4.5
million. The institution will not charge OPC any transaction costs.
Once OPC becomes an all-equity firm, it will remain unlevered
forever. If OPC does not retire the debt, the company will use...

Suppose you have been hired as a financial consultant to Defense
Electronics, Inc. (DEI), a large, publicly traded firm that is the
market share leader in radar detection systems (RDSs). The company
is looking at setting up a manufacturing plant overseas to produce
a new line of RDSs. This will be a five-year project. The company
bought some land three years ago for $4.4 million in anticipation
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