PS32 #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 $2.02 million fully installed and has a 10 year life. It will be depreciated to a book value of $299,622.00 and sold for that amount in year 10. b. The Engineering Department spent $25,517.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $16,621.00. d. The PJX5 will reduce operating costs by $315,429.00 per year. e. CSD's marginal tax rate is 34.00%. f. CSD is 73.00% equity-financed. g. CSD's 15.00-year, semi-annual pay, 6.19\% coupon bond sells for $981.00. h. CSD's stock currently has a market value of $21.37 and Mr. Bensen believes the market estimates that dividends will grow at 2.14% forever. Next year's dividend is projected to be $1.76