Caspian Sea Drinks is considering the purchase of a plum juicer– the PJX5. There is no planned increase in production. The PJX5will reduce costs by squeezing more juice from each plum and doingso in a more efficient manner. Mr. Bensen gave Derek the followinginformation. What is the NPV of the PJX5?
a. The PJX5 will cost $2.17 million fully installed and has a 10year life. It will be depreciated to a book value of $158,814.00and sold for that amount in year 10.
b. The Engineering Department spent $19,133.00 researching thevarious juicers.
c. Portions of the plant floor have been redesigned toaccommodate the juicer at a cost of $16,816.00.
d. The PJX5 will reduce operating costs by $402,119.00 peryear.
e. CSD’s marginal tax rate is 27.00%.
f. CSD is 71.00% equity-financed.
g. CSD’s 11.00-year, semi-annual pay, 6.43% coupon bond sellsfor $992.00.
h. CSD’s stock currently has a market value of $21.08 and Mr.Bensen believes the market estimates that dividends will grow at3.98% forever. Next year’s dividend is projected to be $1.60.
Thanks!
