Question

In: Finance

Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...

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 $2.29 million fully installed and has a 10 year life. It will be depreciated to a book value of $293,616.00 and sold for that amount in year 10.

b. The Engineering Department spent $25,894.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $15,337.00.

d. The PJX5 will reduce operating costs by $489,801.00 per year.

e. CSD’s marginal tax rate is 21.00%.

f. CSD is 64.00% equity-financed.

g. CSD’s 17.00-year, semi-annual pay, 6.01% coupon bond sells for $1,003.00.

h. CSD’s stock currently has a market value of $21.04 and Mr. Bensen believes the market estimates that dividends will grow at 2.93% forever. Next year’s dividend is projected to be $1.57.

Solutions

Expert Solution

Solution :-

Depreciation Per Year = ( Purchase Price - Salvage Value ) / Useful life = ( $2,290,000 - $293,616 ) / 10 = $258,361.60

Therefore IRR of the Project = 14.97%

Their is no use of Research and floor modification costs in calculating after tax cash flows as they are sunk costs.

If there is any doubt please ask in comments


Related Solutions

Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $2.16 million fully installed and has a 10 year life. It will be depreciated to a book value of $203,406.00...
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $1.97 million fully installed and has a 10 year life. It will be depreciated to a book value of $204,551.00...
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $1.91 million fully installed and has a 10 year life. It will be depreciated to a book value of $179,866.00...
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $2.01 million fully installed and has a 10 year life. It will be depreciated to a book value of $239,157.00...
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $1.60 million fully installed and has a 10 year life. It will be depreciated to a book value of $118,230.00...
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $1.74 million fully installed and has a 10 year life. It will be depreciated to a book value of $196,319.00...
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $1.61 million fully installed and has a 10 year life. It will be depreciated to a book value of $128,641.00...
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $2.38 million fully installed and has a 10 year life. It will be depreciated to a book value of $192,598.00...
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $2.13 million fully installed and has a 10 year life. It will be depreciated to a book value of $113,105.00...
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is...
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 $2.45 million fully installed and has a 10 year life. It will be depreciated to a book value of $245,202.00...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT