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 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 $2.46 million fully installed and has a 10 year life. It will be depreciated to a book value of $159,660.00 and sold for that amount in year 10. b. The Engineering Department spent $41,963.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $15,704.00. d. The PJX5 will reduce operating costs by $306,909.00 per year. e. CSD’s marginal tax rate is 30.00%. f. CSD is 56.00% equity-financed. g. CSD’s 18.00-year, semi-annual pay, 5.76% coupon bond sells for $980.00. h. CSD’s stock currently has a market value of $22.20 and Mr. Bensen believes the market estimates that dividends will grow at 2.43% forever. Next year’s dividend is projected to be $1.57.

Answer 1

After considering the given information NPV of PJX5 juicer has been computed as follows.

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