#18 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the...

#18 Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $22.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.15 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.94 million per year and cost $1.90 million per year over the 10-year life of the project. Marketing estimates 15.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 35.00%. The WACC is 10.00%. Find the NPV (net present value).

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#19 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 $197,903.00 and sold for that amount in year 10.

b. The Engineering Department spent $44,218.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $18,179.00.

d. The PJX5 will reduce operating costs by $442,383.00 per year.

e. CSD’s marginal tax rate is 36.00%.

f. CSD is 74.00% equity-financed.

g. CSD’s 15.00-year, semi-annual pay, 5.52% coupon bond sells for $972.00.

h. CSD’s stock currently has a market value of $24.96 and Mr. Bensen believes the market estimates that dividends will grow at 2.66% forever. Next year’s dividend is projected to be $1.54.

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))

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jeff jeffy answered 1 year ago

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