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Caspian Sea Drinks is considering the purchase of a plum juicer - the PJX5. There is no planned increase in production. The PJX5 will reduce

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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 $2.25 million fully installed and has a 10 year life. It will be depreciated to a book value of $185,160.00 and sold for that amount in year 10. b. The Engineering Department spent $35,905.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $16,021.00. d. The PJX5 will reduce operating costs by $457,584.00 per year. e. CSD's marginal tax rate is 24.00%. f. CSD is 73.00% equity-financed. g. CSD's 13.00-year, semi-annual pay, 5.68% coupon bond sells for $1,050.00. h. CSD's stock currently has a market value of $20.36 and Mr. Bensen believes the market estimates that dividends will grow at 2.62% forever. Next year's dividend is projected to be $1.74. 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 $1.14 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.12 million per year and cost $2.45 million per year over the 10-year life of the project. Marketing estimates 16.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 27.00%. The WACC is 12.00%. Find the NPV (net present value)

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