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 IRR of the PJX5?

a. The PJX5 will cost $2.36 million fully installed and has a 10 year life. It will be depreciated to a book value of $152,099.00 and sold for that amount in year 10.

b. The Engineering Department spent $46,108.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $24,577.00.

d. The PJX5 will reduce operating costs by $354,172.00 per year.

e. CSD’s marginal tax rate is 31.00%.

f. CSD is 65.00% equity-financed.

g. CSD’s 17.00-year, semi-annual pay, 5.73% coupon bond sells for $998.00.

h. CSD’s stock currently has a market value of $23.99 and Mr. Bensen believes the market estimates that dividends will grow at 2.41% forever. Next year’s dividend is projected to be $1.42.

Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

Please show the process so I could understand it better. Thanks!

Answer 1