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 IRR of the PJX5? a. The PJX5 will cost $2.32 million fully installed and has a 10 year life. It will be depreciated to a book value of $223,927.00 and sold for that amount in year 10. b. The Engineering Department spent $29,992.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $20,688.00. d. The PJX5 will reduce operating costs by $481,420.00 per year. e. CSD's marginal tax rate is 36.00%. f. CSD is 67.00% equity-financed. g. CSD's 10.00-year, semi-annual pay, 5.05% coupon bond sells for $1,026.00. h. CSD's stock currently has a market value of $23.65 and Mr. Bensen believes the market estimates that dividends will grow at 3.09% forever. Next year's dividend is projected to be $1.67. Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

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 IRR of the PJX5? a. The PJX5 will cost $2.32 million fully installed and has a 10 year life. It will be depreciated to a book value of $223,927.00 and sold for that amount in year 10. b. The Engineering Department spent $29,992.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $20,688.00. d. The PJX5 will reduce operating costs by $481,420.00 per year. e. CSD's marginal tax rate is 36.00%. f. CSD is 67.00% equity-financed. g. CSD's 10.00-year, semi-annual pay, 5.05% coupon bond sells for $1,026.00. h. CSD's stock currently has a market value of $23.65 and Mr. Bensen believes the market estimates that dividends will grow at 3.09% forever. Next year's dividend is projected to be $1.67. Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Whispering Winds Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $56,525. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $8,500. At the end of eight years, the company will sell the truck for an estimated $27,600. Traditionally, the company has used a general rule that it should not accept a proposal unless it has a payback period that is less than 50% of the asset's estimated useful life. William Davis, a new manager, has suggested that the company should not rely only on the payback approach but should also use the net present value method when evaluating new projects. The company's cost of capital is 8%. (a) Calculate the cash payback period and net present value of the proposed investment. (If the net present value is negative, use either a…
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Waterway Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company’s current truck (not the least of which is that it runs). The new truck would cost $57,000. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $7,500. At the end of 8 years, the company will sell the truck for an estimated $28,100. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset’s estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company’s cost of capital is 8%. Compute the cash payback period and net present value of the proposed investment. (If the net present value is negative, use either a negative sign…
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#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 $1.83 million fully installed and has a 10 year life. It will be depreciated to a book value of $164,562.00 and sold for that amount in year 10. b. The Engineering Department spent $26,999.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $15,963.00. d. The PJX5 will reduce operating costs by $316,008.00 per year. e. CSD’s marginal tax rate is 36.00%. f. CSD is 59.00% equity-financed. g. CSD’s 20.00-year, semi-annual pay, 5.99% coupon bond sells for $1,013.00. h. CSD’s stock currently has a market value of $21.74 and Mr. Bensen believes the market estimates that dividends will grow…
A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,164.00 to install, $5,072.00 to operate per year for 7 years at which time it will be sold for $7,041.00. The second, RayCool 8, costs $41,329.00 to install, $2,088.00 to operate per year for 5 years at which time it will be sold for $9,047.00. The firm's cost of capital is 6.68 %. What is the equivalent annual cost of the AC360? Assume that there are no taxes. Submit Answer format: Currency: Round to: 2 decimal places.

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