Question
1. Caspian Sea Drinks is considering the purchase of a plum juicer the PJX5. There is no planned increase in production. The PJX5 will reduce
1.
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 $1.86 million fully installed and has a 10 year life. It will be depreciated to a book value of $167,400.00 and sold for that amount in year 10.
b. The Engineering Department spent $46,318.00 researching the various juicers.
c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $18,567.00.
d. The PJX5 will reduce operating costs by $334,154.00 per year.
e. CSDs marginal tax rate is 26.00%.
f. CSD is 74.00% equity-financed.
g. CSDs 20.00-year, semi-annual pay, 6.62% coupon bond sells for $970.00.
h. CSDs stock currently has a market value of $22.56 and Mr. Bensen believes the market estimates that dividends will grow at 3.98% forever. Next years dividend is projected to be $1.45.
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