Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Because of unexpectedly high demand, Pizzas-by-Mail finds it may need a larger oven. The old oven cost $20,000 new and has been in use for

Because of unexpectedly high demand, Pizzas-by-Mail finds it may need a larger oven. The old oven cost $20,000 new and has been in use for 1 year. Ovens are Class 8 asset with a 20% depreciation rate. It can be sold today for $12,000. If the old oven were kept for another 3 years, then it could be sold for $1,000. The new oven, which makes perfect envelope-sized pizzas, costs $36 000. The new oven will be worth $4,000 in 3 years. The larger oven will require an additional inventory of $500 be held Revenues will increase $20 000 and costs will increase by $3,000. Assume a 40% tax rate and 15% discount rate and compute the NPV. Should Pizzas-by-Mail replace the oven

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting principles and analysis

Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso

2nd Edition

471737933, 978-0471737933

More Books

Students also viewed these Accounting questions