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 $1.58 million fullyinstalled and has a 10 year life. It will be depreciated to a book value of $107,984.00 and sold for that amount in year10. b. The Engineering Department spent $30, 114.00 researching the various juicers. c. Portions of the plant floorhave been redesigned to accommodate the juicer at a cost of $18,576.00. d. The PJX5 will reduce operating costs by $310,028.00 per year. e. CSD's marginal tax rate is 20.00%. f. CSD is 66.00% equity - financed. g. CSD's 14.00-year,semi-annual pay, 6.84% coupon bond sells for $1,032.00. h. CSD's stock currently has a market value of $22.92 andMr. Bensen believes the market estimates that dividends will grow at 2.28% forever. Next year's dividend is projected tobe $1.77. Submit

What is Net Present Value?Whenever a corporation wants to undertake a new project it does a cost…

Answered: What is the NPV of the PJX5? a

Business

Accounting

What is the NPV of the PJX5? a

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 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 $2.46 million fully installed and has a 10 year life. It will be depreciated to a book value of $197,632.00 and sold for that amount in year 10. b. The Engineering Department spent $29,074.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $15,768.00. d. The PJX5 will reduce operating costs by $448,114.00 per year. e. CSD’s marginal tax rate is 21.00%. f. CSD is 60.00% equity-financed. g. CSD’s 10.00-year, semi-annual pay, 6.16% coupon bond sells for $1,014.00. h. CSD’s stock currently has a market value of $23.47 and Mr. Bensen believes the market estimates that dividends will grow at…
4. What is a Break-even Point and why do managers calculate it? 5. Branton Electric is considering the purchase of an entire cargo container filled with upgraded utility meters for $20,000. Branton can charge $50 for the installation of each upgraded meter, while the actual cost of the installation would be only $15. How many utility meter upgrades are necessary for Branton Electric to break even on this purchase? (Quick Start #16) 6. What are the advantages and disadvantages of using a conservative strategy of Capacity versus an Aggressive strategy?
Amazon is considering using high capacity drones that would make its product deliveries more efficient. For this project, $140,000 would need to be spent right away to buy the required fleet of drones. The drones will be losing their economic value in equal amount each year, fully over their 5-year economic lives. Once the drones' economic life is over, they would all be sold for $10,300 selling price to a new owner, and Amazon would then immediately purchase the same but brand-new drones for the same price as what it paid for the initial fleet of drones. When those drones' life is over, they would again be sold and, again, brand-new ones would be purchased - all for the same prices as for the initial drones, and so on, over and over. Additional information: • Amazon expects $10,100 in annual operating costs. . All future cash flows are year-end cash flows. • Amazon pays 24 percent tax rate on all taxable income. • Amazon requires an annual discount rate of 10 percent, and the rate is…
Amazon is considering using high capacity drones that would make its product deliveries more efficient. For this project, $113,000 would need to be spent right away to buy the required fleet of drones. The drones will be losing their economic value in equal amount each year, fully over their 5-year economic lives. Once the drones' economic life is over, they would all be sold for $8,500 selling price to a new owner, and Amazon would then immediately purchase the same but brand-new drones for the same price as what it paid for the initial fleet of drones. When those drones' life is over, they would again be sold and, again, brand-new ones would be purchased - all for the same prices as for the initial drones, and so on, over and over. Additional information: • Amazon expects $9,200 in annual operating costs. • All future cash flows are year-end cash flows. ● Amazon pays 25 percent tax rate on all taxable income. Amazon requires an annual discount rate of 9 percent, and the rate is not…
12 O 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 $2.48 million fully installed and has a 10 year life. It will be depreciated to a book value of $176,612.00 and sold for that amount in year 10 b. The Engineering Department spent $15,056.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $21,040.00 d. The PJX5 will reduce operating costs by $489,341.00 per year e CSD's marginal tax rate is 22.00% 1. CSD is 75.00% equity-financed 9 CSD's 14 00-year, semi-annual pay, 6.38% coupon bond sells for $1,045,00 h. CSD's stock currently has a market value of $21.80 and Mr. Bensen believes the market estimates that dividends will grow at 4 27%…
Amazon is considering using high capacity drones that would make its product deliveries more efficient. For this project, $116,000 would need to be spent right away to buy the required fleet of drones. The drones will be losing their economic value in equal amount each year, fully over their 6-year economic lives. Once the drones economic life is over, they would all be sold for $8,700 selling price to a new owner, and Amazon would then immediately purchase the same but brand-new drones for the same price as what it paid for the initial fleet of drones. When those drones' life is over, they would again be sold and, again, brand-new ones would be purchased - all for the same prices as for the initial drones, and so on, over and over. Additional information: . .. Amazon expects $9,300 in annual operating costs. All future cash flows are year-end cash flows. Amazon pays 21 percent tax rate on all taxable income. Amazon requires an annual discount rate of 10 percent, and the rate is not…
Ruff Motors needs to select an assembly line for producing their new SUV. They have two options:• Option A is a highly automated assembly line that has a large up-front cost but low maintenancecost over the years. This option will cost $8 million today with a yearly operating cost of $2 million.The assembly line will last for 5 years and be sold for $5 million in 5 years.• Option B is a cheaper alternative with less technology, a longer life, but higher operating costs.This option will cost $7 million today with an annual operating cost of $2.5 million. This assemblyline will last for 8 years and be sold for $1 million in 8 years.The firm’s cost of capital is 12%. Assume a tax rate of zero percent.The equivalent annual cost (EAC) for Option A is $_______ million.The equivalent annual cost (EAC) for Option B is $_______ million.
MKM International is seeking to purchase a new CNC ma-chine in order to reduce costs. Two alternative machines arein consideration. Machine 1 costs $500,000 but yields a 15 per-cent savings over the current machine used. Machine 2 costs$900,000 but yields a 25 percent savings over the current ma-chine used. In order to meet demand, the following forecastedcost information for the current machine is also provided.a. Based on the NPV of the cash flows for these five years,which machine should MKM International Purchase? As-sume a discount rate of 12 percent.b. If MKM International lowered its required discount rate to8 percent, what machine would it purchase?Year Projected Cost1 1,000,0002 1,350,0003 1,400,0004 1,450,0005 2,550,000
Arrowroot Ltd is considering whether to invest in a machine that produces soft drink bottles now or in one year’s time. The machine costs $2 million and the bottles will be ready for sale immediately after the machine is purchased. The machine is expected to produce 1 million bottles per year forever. Currently, the bottle can be sold for $0.4 each but next year the price will change. If there is a high demand, the price for one bottle will be $0.6. If the demand is normal, the price will be $0.3 per bottle. If the demand is low, the price will be $0.1 per bottle. The probability of high demand is 0.3, the probability of normal demand is 0.2 and the probability of low demand is 0.5. The price will remain at this new level forever. Assume no taxes and the company’s cost of capital is 10 percent per annum. Should the company invest in the machine now or delay it by one year? Show all calculations. What is the value of the option to delay?
GSU Motor Works needs to select an assembly line for producing their new SUV. They have two options:• Option XYZ is a highly automated assembly line that has a large up-front cost but low maintenancecost over the years. This option will cost $114 million today with a yearly operating cost of $40million. The assembly line will last for 6 years and be sold for $48 million in 6 years.• Option GHI is a cheaper alternative with less technology, a longer life, but higher operating costs.This option will cost $168 million today with an annual operating cost of $32 million. Thisassembly line will last for 10 years and be sold for $23 million in 10 years.The firm’s cost of capital is 16%. Assume a tax rate of zero percent. The equivalent annual cost (EAC) for Option XYZ is $_______ million.The equivalent annual cost (EAC) for Option GHI is $_______ million.
A company planning to market a new model of motor scooter analyzes the effect of changes in the selling price of the motor scooter, the number of units that will be sold, and the cost of making the motor scooter on the estimated net present value (NPV) of the project. They predict that the break-even point for sales price for the motor scooter is $2,480. What does this mean? O If the motor scooter is sold for $2,480, then the project will make a profit. The net present value (NPV) of the project equals to zero at the sale price of the motor scooter equal to $2,480. O At the price of $2,480, the revenue for the scooter will exactly equal its production cost. O The predicted selling price of the motor scooter is $2,480. O The maximum that the motor scooter can sell for and still make the project have a positive net present value (NPV) is $2,480.
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