Question

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 PJXS? a. The PJX5 will cost $1.66 million fully installed and has a 10 year life. It will be depreciated to a book value of $250,198.00 and sold for that amount in year 10 b. The Engineering Department spent $23. 262.00 researching the various juicers. c Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $24.123.00 a The PjX5 will reduce operating costs by $363,537.00 per year. e CSD's marginal tax rate is 25.00% 1. CSD is 60.00% equity-financed 9 CSD's 20.00-year, semi-annual pay, 5.69% coupon bond sells for $999.00 n CSD's stock currently has a market value of $24.07 and Mr. Bensen believes the market estimates that dividends will grow at 2.29% forever. Next year's dividend is projected to be $1.51. Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Www accept decimal format rounded to decimal places (ex 0 0924))

Answer 1

Solution:-

Depreciation Per year = $\frac{1,660,000-250,198}{10}$

Depreciation Per year = $117,483.5

Note:- Engineering Department Cost and Redesigned Cost are Irrelevant Cost.

To Calculate IRR of the Project-

B С D E F G Н K M 9 A 1 Solution :- 2 3 4 Year 5 Initial Cost 6 Saving In Operating Cost 7 Less :- Depreciation 8 Pre Tax Cash flows 9 Less :- Tax @ 25% 10 Net Operating Profit After Tax 11 Add :- Depreciation 12 Add:- Salvage Value 13 Operating Cashflows 14 15 IRR 16 17 Formula 18 Statement of Cash flows After Tax ol 2 3 4 5 6 7 8 10 ($16,60,000.00) $3,63,537.00 $3,63,537.00 $3,63,537.00 $3,63,537.00 $3,63,537.00 $3,63,537.00 $3,63,537.00 $3,63,537.00 $3,63,537.00 $3,63,537.00 $1,17,483.50 $1,17.483.50 $1,17,483.50 $1,17,483.50 $1,17.483.50 $1,17,483.50 $1,17,483.50 $1,17.483.50 $1,17,483.50 $1,17,483.50 $2,46,053.50 $2,46,053.50 $2,46,053.50 $2,46,053.50 $2,46,053.50 $2,46,053.50 $2,46,053.50 $2,46,053.50 $2,46,053.50 $2,46,053.50 $61,513.38 $61,513.38 $61,513.38 $61,513.38 $61,513.38 $61,513.38 $61,513.38 $61,513.38 $61.513.38 $61,513.38 $1,84,540.13 $1,84,540.13 $1,84,540.13 $1,84,540.13 $1,84,540.13 $1,84,540.13 $1,84,540.13 $1,84,540.13 $1,84,540.13 $1,84,540.13 $1,17,483.50 $1,17,483.50 $1,17,483.50 $1,17,483.50 $1,17,483.50 $1,17,483.50 $1,17,483.50 $1,17,483.50 $1,17,483.50 $1,17,483.50 $2,50,198.00 ($16,60,000.00) $3,02,023.63 $3,02,023.63 $3,02,023.63 3,02,023.63 3,02,023.63 3,02,023.63 3,02,023.63 3,02,023.63 3,02,023.63 3,02,023.63 5,52,221.63 13.75% IRR(B13:L13)

в C D E F G H J K M Statement of Cash flows After Tax (Formula Sheet) 12 13 4 15 16 11 7 18 19 10 0 =-1660000 A 1 Solution :- 2 3 4 Year 5 Initial Cost 6 Saving In Operating Cost 7 Less :- Depreciation 8 Pre Tax Cash flows 9 Less :- Tax @ 25% 10 Net Operating Profit After Tax 11 Add :- Depreciation 12 Add:- Salvage Value 13 Operating Cashflows 14 15 IRR 16 17 Formula 18 363537 363537 363537 363537 363537 363537 363537 363537 363537 363537 117483.5 117483.5 117483.5 117483.5 117483.5 117483.5 117483.5 117483.5 117483.5 117483.5 =C6-C7 =D6-D7 =E6-E7 =F6-F7 =G6-G7 =H6-H7 =16-17 =J6-J7 I=K6-K7 I=L6-L7 =C8*0.25 =D8*0.25 =E8*0.25 =F8*0.25 =G8*0.25 =H8*0.25 =18*0.25 =38*0.25 =K8*0.25 =L8*0.25 I=C8-C9 =D8-D9 =E8-E9 =F8-F9 =G8-G9 =H8-H9 1=18-19 =J8-J9 =K8-K9 =L8-L9 =C7 =D7 =E7 =F7 =G7 =H7 =17 =J7 I=L7 250198 =C10+C11 =D10+D11 =E10+E11 |=F10+F11 =G10+G11 =H10+H11 =110+111 =10+J11 =K10+K11 =L10+L11+L12 =K7 =B5 =IRR(B13:L13) IRR(B13:L13)

Internal Rate of Return is 13.75%

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