Pete’s Pizza is planning to purchase a new type of oven that cooks pizza much faster than the conventional oven now used. The new oven is estimated to cost $20,000 (use straight-line depreciation) and will have a 5-year life, after which it will be traded in for $4,000. Pete has calculated that the new oven will allow him to increase his sales revenue by

$30,000 a year. His food cost is 30%, labor cost is 40%, and other variable costs are 10% of sales revenue. Assume a 35% income tax rate. For any new investment, Pete wants a minimum 12% return. Use IRR to help him decide if he should purchase the new oven.

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