Question
In: Finance
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 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%.
- Calculate the net present value and internal rate of return of replacing the existing machine
Solutions
jeff jeffy answered 2 years 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
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...
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...
The Cupcake Company is considering purchasing a new oven which will reduce baking time. Because of...
The Cupcake Company is considering purchasing a new oven which
will reduce baking time. Because of reduced baking time, the
Company expects that revenues would be increased by $1,500 per year
for the next 10 years. The electrical costs for the Company are
expected to increase $200 in the same 10 years. The oven would cost
$9,000 and would have a residual value of $1,000 at the end of the
tenth year. The company would dispose of their current oven...
The Cupcake Company is considering purchasing a new oven which will reduce baking time. Because of...
The Cupcake Company is considering purchasing a new oven which
will reduce baking time. Because of reduced baking time, the
Company expects that revenues would be increased by $1,500 per year
for the next 10 years. The electrical costs for the Company are
expected to increase $200 in the same 10 years. The oven would cost
$9,000 and would have a residual value of $1,000 at the end of the
tenth year. The company would dispose of their current oven...
The XYZ company is considering the purchase of a new machine to replace an out of...
The XYZ company is considering the purchase of a new machine to
replace an out of date machine that has a book value of $18000 and
can be sold today for $2,000. The old machine is being depreciated
on a straightline basis over 4 more years to a book value of $2000
at the end of the fourth year. The old machine generates annual
revenues of $105000 and annual expenses of $75000. This machine
requires a fixed investment of $5000...
Larry’s Lawn Service needs to purchase a new lawnmower costing $8,406 to replace an old lawnmower...
Larry’s Lawn Service needs to purchase a new lawnmower costing
$8,406 to replace an old lawnmower that cannot be repaired. The new
lawnmower is expected to have a useful life of 5 years, with no
salvage value at the end of that period.
(a) If Larry’s required rate of return is 10%, what level of
annual cash savings must the lawnmower generate to be considered an
acceptable investment under the net present value method? (For
calculation purposes, use 4 decimal...
Amanda's Bakery plans to purchase a new oven for its store. The oven has an estimated...
Amanda's Bakery plans to purchase a new oven for its store. The
oven has an estimated useful life of 4 years. The estimated pretax
cash flows for the oven are as shown in the table that follows,
with no anticipated change in working capital. Amanda's Bakery has
a 14% after-tax required rate of return and a 35% income tax
rate. Assume depreciation is calculated on a straight-line basis
for tax purposes using the initial investment in the oven and its...
Bakery plans to purchase a new oven for its store. The oven has an estimated useful...
Bakery plans to purchase a new oven for its store. The oven has
an estimated useful life of 4 years.
The estimated pretax cash flows for the oven are as shown in the
table that? follows, with no anticipated change in working
capital.
Bertha's Bakery has a 14?% ?after-tax required rate of return and a
33?% income tax rate.
Assume depreciation is calculated on a? straight-line basis for tax
purposes using the initial oven investment and estimated terminal
disposal value...
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