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

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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 $2.38 million fully installed and has a 10year life. It will be depreciated to a book value of $263,369.00and sold for that amount in year 10.
b. The Engineering Department spent $17,966.00 researching thevarious juicers.
c. Portions of the plant floor have been redesigned toaccommodate the juicer at a cost of $18,312.00.
d. The PJX5 will reduce operating costs by $359,801.00 peryear.
e. CSD’s marginal tax rate is 21.00%.
f. CSD is 63.00% equity-financed.
g. CSD’s 16.00-year, semi-annual pay, 6.07% coupon bond sellsfor $1,015.00.
h. CSD’s stock currently has a market value of $21.09 and Mr.Bensen believes the market estimates that dividends will grow at2.68% forever. Next year’s dividend is projected to be $1.55.

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NPV is Net Present Value of the Future Cash FlowsPresent value is calculated by Discounting the Future cash flowsbased on the Discount Rate Discount Rate is the rate of returnexpected for the Investment and RiskNPV Sum of TodaysPresent value of the Expected CashflowsPresent Value of Expected Cash See Answer

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Transcribed Image Text

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 $2.38 million fully installed and has a 10year life. It will be depreciated to a book value of $263,369.00and sold for that amount in year 10.b. The Engineering Department spent $17,966.00 researching thevarious juicers.c. Portions of the plant floor have been redesigned toaccommodate the juicer at a cost of $18,312.00.d. The PJX5 will reduce operating costs by $359,801.00 peryear.e. CSD’s marginal tax rate is 21.00%.f. CSD is 63.00% equity-financed.g. CSD’s 16.00-year, semi-annual pay, 6.07% coupon bond sellsfor $1,015.00.h. CSD’s stock currently has a market value of $21.09 and Mr.Bensen believes the market estimates that dividends will grow at2.68% forever. Next year’s dividend is projected to be $1.55.