Question

#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 $2.36 million fully installed and has a 10 year life. It will be depreciated to a book value of $129,715.00 and sold for that amount in year 10.

b. The Engineering Department spent $16,302.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $19,596.00.

d. The PJX5 will reduce operating costs by $496,443.00 per year.

e. CSD’s marginal tax rate is 37.00%.

f. CSD is 60.00% equity-financed.

g. CSD’s 16.00-year, semi-annual pay, 6.97% coupon bond sells for $989.00.

h. CSD’s stock currently has a market value of $21.44 and Mr. Bensen believes the market estimates that dividends will grow at 3.30% forever. Next year’s dividend is projected to be $1.78.

#2 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 $1.83 million fully installed and has a 10 year life. It will be depreciated to a book value of $186,745.00 and sold for that amount in year 10.

b. The Engineering Department spent $14,768.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $23,440.00.

d. The PJX5 will reduce operating costs by $371,127.00 per year.

e. CSD’s marginal tax rate is 33.00%.

f. CSD is 62.00% equity-financed.

g. CSD’s 16.00-year, semi-annual pay, 6.65% coupon bond sells for $1,047.00.

h. CSD’s stock currently has a market value of $24.67 and Mr. Bensen believes the market estimates that dividends will grow at 2.81% forever. Next year’s dividend is projected to be $1.69

Answer 1

Answer 1 and 2 are attached below :