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 of the oven.
Assume all cash flows occur at? year-end except for initial investment amounts.

Relevant Cash Flows at End of Each Year

0
1
2
3
4
Initial machine investment
$(90,000)
Annual cash flows from operations
(excluding the depreciation effect)
$36,000
$36,000
$36,000
$36,000
Cash flow from terminal disposal of oven
$10,000

1.	Calculate? (a) net present? value, (b) payback? period, and? (c) internal rate of return.
2.	Calculate accrual accounting rate of return based on net initial investment.

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

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...

Management is contemplating the purchase of a new oven which cost $25,000.00 with an estimated salvage...

Management is contemplating the purchase of a new oven which cost $25,000.00 with an estimated salvage value of zero. Expected before tax cash savings from the new oven are $4,000 a year over its full depreciable life. Depreciation is computed using straight line over a 5 year life, and the cost of capital is 10%. At the end of the oven's life, it can be sold for 2,000. Assume a 40% tax rate. What is the net present value of...

You need a new oven for your bakery. Your current oven is worn out so you...

You need a new oven for your bakery. Your current oven is worn out so you are trying to decide which one of two ovens to buy as a replacement. Whichever oven you purchase will be replaced after its useful life. Oven A costs $25,000 and costs $3,000 a year to operate over an 8-year life. Oven B costs $20,000 and costs $4,500 a year to operate over a 6-year life. Given this information, which one of the following statements...

A new industrial oven has just been installed at the Piatt Bakery. To develop experience regarding...

A new industrial oven has just been installed at the Piatt Bakery. To develop experience regarding the oven temperature, an inspector reads the temperature at four di erent places inside the oven each half hour. Reading Time 1 2 3 4 8:00 A.M. 340 350 355 339 8:30 A.M. 344 342 338 338 9:00 A.M. 341 345 347 343 9:30 A.M. 339 339 341 341 10:00 A.M. 337 342 346 341 10:30 A.M. 339 340 339 340 1. Determine the...

A new industrial oven has just been installed at Piatt Bakery. To develop experience regarding the...

A new industrial oven has just been installed at Piatt Bakery. To develop experience regarding the oven temperature, an inspector reads the temperature at four different places inside the oven each half hour starting at 8:00 a.m. The last reading was at 10:30 a.m., for a total of six samples. The first reading, taken at 8:00 a.m., was 337 degrees Fahrenheit. (Only the last two digits are given in the following table to make the computations easier.) Reading Time 1...

A new machine costs $120,000, has an estimated useful life of five years and an estimated...

A new machine costs $120,000, has an estimated useful life of five years and an estimated salvage value of $15,000 at the end of that time. It is expected that the machine can produce 210,000 widgets during its useful life. The New Times Company purchases this machine on January 1, 2017, and uses it for exactly three years. During these years the annual production of widgets has been 80,000, 50,000, and 30,000 units, respectively. On January 1, 2020, the machine...

Needed Information: -The equipment has an estimated useful life of 13 years. -There is no purchase...

Needed Information: -The equipment has an estimated useful life of 13 years. -There is no purchase option. Transfer of ownership to Michael is not stipulated in the lease contract. -The fair value to Thomas (lessor) at the inception of the lease was $4,000,000. Lessor's cost was $3,775,000. Sales commissions were $2,500. -Michael's incremental borrowing rate is 10%. The implicit annual rate in the lease (known to Michael) is 8%. - Michael and Thomas use straight-line depreciation. -The lease requires rental...

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...

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...

Subjects