Reference no: EM132790822

Problem 1: 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 NPV of the PJX5?

a. The PJX5 will cost $2.43 million fully installed and has a 10 year life. It will be depreciated to a book value of $113,707.00 and sold for that amount in year 10.
b. The Engineering Department spent $39,939.00 researching the various juicers.
c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $15,378.00.
d. The PJX5 will reduce operating costs by $422,292.00 per year.
e. CSD's marginal tax rate is 33.00%.
f. CSD is 61.00% equity-financed.
g. CSD's 12.00-year, semi-annual pay, 6.06% coupon bond sells for $960.00.
h. CSD's stock currently has a market value of $24.59 and Mr. Bensen believes the market estimates that dividends will grow at 2.13% forever. Next year's dividend is projected to be $1.61.