Pat

Pat,
a Pizzeria manager, replaced the convection oven just six months ago. Today,
Turbo Ovens Manufacturing announced the availability of a new convection oven
that cooks more quickly with lower operating expenses. Pat is considering the
purchase of this faster, lower-operating cost convection oven
to replace the existing one they recently purchased. Selected information about
the two ovens is given below:

Existing    New Turbo Oven

Original cost                              $60,000                       $50,000

Accumulated
depreciation       $ 5,000                                  ?

Current
salvage value              $40,000                                  ?

Remaining
life                           5 years                        5 years

Annual
operating expenses    $10,000                        $ 7,500

Disposal
value in 5 years                $ 0                               $ 0

Required:

a.   What costs
are sunk?

b.   What costs
are relevant?

c.   What are the
net cash flows over the next 5 years assuming the Pizzeria purchases the new
convection oven?

d.   What other
items should Pat, as manager of the Pizzeria, consider when making this
decision?

 

You can place an order similar to this with us. You are assured of an authentic custom paper delivered within the given deadline besides our 24/7 customer support all through.

 

[order_calculator]