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 IRR of the PJX5?
a. The PJX5 will cost $1.74 million fully installed and has a 10year life. It will be depreciated to a book value of $284,936.00and sold for that amount in year 10.
b. The Engineering Department spent $49,835.00 researching thevarious juicers.
c. Portions of the plant floor have been redesigned toaccommodate the juicer at a cost of $21,599.00.
d. The PJX5 will reduce operating costs by $407,610.00 peryear.
e. CSD’s marginal tax rate is 34.00%.
f. CSD is 61.00% equity-financed.
g. CSD’s 19.00-year, semi-annual pay, 6.59% coupon bond sellsfor $997.00.
h. CSD’s stock currently has a market value of $21.12 and Mr.Bensen believes the market estimates that dividends will grow at2.48% forever. Next year’s dividend is projected to be $1.73.

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3.9 Ratings (779 Votes)

Following information is given in the question PJX5 cost is 1740000 with 10 years of useful life Salvage value of PJX5 is 284936 RD cost is 49835 Floor redesign cost is 21599 Operating cost saving is 407610 per year Tax rate is 34 659 coupon bond pays semiannual interest Current value of stock is 2112 dividend growth rate is 248 next year dividend is 173 For calculating IRR of PJX5 we have to first calculate the Weighted Average Cost of Capital WACC of Caspian Sea Drinks because for calculating IRR we have to use hit and trial method by putting two required rates of interest in See Answer

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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 IRR of the PJX5?a. The PJX5 will cost $1.74 million fully installed and has a 10year life. It will be depreciated to a book value of $284,936.00and sold for that amount in year 10.b. The Engineering Department spent $49,835.00 researching thevarious juicers.c. Portions of the plant floor have been redesigned toaccommodate the juicer at a cost of $21,599.00.d. The PJX5 will reduce operating costs by $407,610.00 peryear.e. CSD’s marginal tax rate is 34.00%.f. CSD is 61.00% equity-financed.g. CSD’s 19.00-year, semi-annual pay, 6.59% coupon bond sellsfor $997.00.h. CSD’s stock currently has a market value of $21.12 and Mr.Bensen believes the market estimates that dividends will grow at2.48% forever. Next year’s dividend is projected to be $1.73.