Question
In: Finance
1. Premium Pie Company needs to purchase a new baking oven to replace an older oven...
1. Premium Pie Company needs to purchase a new baking oven to
replace an older oven that requires too much energy to run. The
industrial size oven will cost $1,200,000. The oven will be
depreciated on a straight-line basis over its six-year useful life.
The old oven cost the company $800,000 just four years ago. The old
oven is being depreciated on a straight-line basis over its
expected ten-year useful life. (That is, the old oven is expected
to last six more years if it is not replaced now.) Due to changes
in fuel costs, the old oven may only be sold today for $100,000.
The new oven will allow the company to expand, increasing sales by
$300,000 per year. Expenses will also decrease by $50,000 per year
due to the more energy efficient design of the new oven. Premium
Pie Company is in the 40% marginal tax bracket and has a required
rate of return of 10%.
a. Calculate the net present value and internal rate of return of
replacing the existing machine
b. Explain the impact on NPV of the following:
i) Required rate of return increases
ii) Operating costs of new machine are increased
iii) Existing machine sold for less
Solutions
jeff jeffy answered 6 months agoRelated Solutions
Premium Pie Company needs to purchase a new baking oven to replace an older oven that...
Premium Pie Company needs to purchase a new baking oven to
replace an older oven that requires too much energy to run. The
industrial size oven will cost $1,200,000. The oven will be fully
depreciated on a straight-line basis over its six-year useful life.
The old oven cost the company $800,000 just four years ago. The old
oven is being depreciated on a straight-line basis over its
expected ten-year useful life. (That is, the old oven is expected
to last...
Premium Pie Company needs to purchase a new baking oven to replace an older oven that...
Premium Pie Company needs to purchase a new baking oven to
replace an older oven that requires too much energy to
run. The industrial size oven will cost
$1,200,000. The oven will be fully depreciated on a
straight-line basis over its six-year useful life. The
old oven cost the company $800,000 just four years
ago. The old oven is being depreciated on a
straight-line basis over its expected ten-year useful
life. (That is, the old oven is expected to last six
more years if it...
Premium Pie Company needs to purchase a new baking oven to replace an older oven that...
Premium Pie Company needs to purchase a new baking oven to
replace an older oven that requires too much energy to run. The
industrial size oven will cost $1,200,000. The oven will be
depreciated on a straight-line basis over its six-year useful life.
The old oven cost the company $800,000 just four years ago. The old
oven is being depreciated on a straight-line basis over its
expected ten-year useful life. (That is, the old oven is expected
to last six...
7. Premium Pie Company needs to purchase a new baking oven to replace an older oven...
7. Premium Pie Company needs to purchase a new baking oven to
replace an older oven that requires too much energy to run. The
industrial size oven will cost $1,200,000. The oven will be fully
depreciated on a straight-line basis over its six-year useful life.
The old oven cost the company $800,000 just four years ago. The old
oven is being depreciated on a straight-line basis over its
expected ten-year useful life. (That is, the old oven is expected
to...
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