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 $1.73 million fully installed and has a 10 year life. It will be depreciated to a book value of $210,896.00 and sold for that amount in year 10.

b. The Engineering Department spent $33,555.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $22,180.00.

d. The PJX5 will reduce operating costs by $495,688.00 per year.

e. CSD’s marginal tax rate is 33.00%.

f. CSD is 74.00% equity-financed.

g. CSD’s 14.00-year, semi-annual pay, 6.43% coupon bond sells for $951.00.

h. CSD’s stock currently has a market value of $24.18 and Mr. Bensen believes the market estimates that dividends will grow at 3.53% forever. Next year’s dividend is projected to be $1.55.

Answer 1

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