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

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Finance

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!

Answer & Explanation Solved by verified expert
3.8 Ratings (693 Votes)
before tax cost of debt using rate function in M S excel ratenperpmtpvfvtype nper 22 pmt 100064312 3215 pv 992 fv 1000 type 0 RATE22321599210000 327 after tax annual cost of debt 3722127 5431 cost of equity expected dividendmarket pricegrowth rate 162108398 1157 WACC source weight component cost weightcomponent cost debt 29 543 15749900 equity 71 1157 82147000 total 100 WACC sum of weightcomponent cost 979 cost of juicer 2170000 installation expenses 19133 total cash outflow 2189133 Annual cash flow annual    See Answer
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