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 $1.90 million fully installed and has a 10 year life. It will be depreciated to a book value of $158,307.00 and sold for that amount in year 10. b. The Engineering Department spent $11,647.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $22,370.00. d. The PJX5 will reduce operating costs by $440,567.00 per year. e. CSD’s marginal tax rate is 31.00%. f. CSD is 72.00% equity-financed. g. CSD’s 19.00-year, semi-annual pay, 6.57% coupon bond sells for $1,000.00. h. CSD’s stock currently has a market value of $24.80 and Mr. Bensen believes the market estimates that dividends will grow at 3.60% forever. Next year’s dividend is projected to be $1.74.
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 $1.90 million fully installed and has a 10 year life. It will be depreciated to a book value of $158,307.00 and sold for that amount in year 10. b. The Engineering Department spent $11,647.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $22,370.00. d. The PJX5 will reduce operating costs by $440,567.00 per year. e. CSD’s marginal tax rate is 31.00%. f. CSD is 72.00% equity-financed. g. CSD’s 19.00-year, semi-annual pay, 6.57% coupon bond sells for $1,000.00. h. CSD’s stock currently has a market value of $24.80 and Mr. Bensen believes the market estimates that dividends will grow at 3.60% forever. Next year’s dividend is projected to be $1.74.
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