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 $1.87 million fully installed and has a 10 year life. It will be depreciated to a book value of $291,551.00 and sold for that amount in year 10. b. The Engineering Department spent $27,898.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $18,440.00 d. The PJX5 will reduce operating costs by $398,490.00 per year. e. CSD's marginal tax rate is 26.00%. f. CSD is 55.00% equity-financed. g. CSD's 19.00-year, semi-annual pay, 6.78% coupon bond sells for $977.00, h. CSD's stock currently has a market value of $21.77 and Mr. Bensen believes the market estimates that dividends will grow at 3.18% forever. Next year's dividend is projected to be $1.62

Answer 1