Question
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
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 IRR of the PJX5? a. The PJX5 will cost $2.27 million fully installed and has a 10 year life. It will be depreciated to a book value of $172,909.00 and sold for that amount in year 10. b. The Engineering Department spent $44,185.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $19,761.00. d. The PJX5 will reduce operating costs by $420,289.00 per year. e. CSDs marginal tax rate is 36.00%. f. CSD is 72.00% equity-financed. g. CSDs 17.00-year, semi-annual pay, 5.91% coupon bond sells for $991.00. h. CSDs stock currently has a market value of $20.69 and Mr. Bensen believes the market estimates that dividends will grow at 4.21% forever. Next years dividend is projected to be $1.47.
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