Brownies Bakery is thinking about replacing the convection oven with a new, more energy-efficient model. Information related to the old and new ovens follows:

(See the below DATA TABLE related to the old and new ovens.).

Following are the requirements.

Ignore the effect of income taxes and the time value of money.

1. Which of the costs and benefits above are relevant to the decision to replace the oven?

2. What information is irrelevant? Why is it irrelevant?

3. Should Brownie's Bakery purchase the new oven? Provide support for your answer.

4. Is there any conflict between the decision model and the incentives of the manager who has purchased the "old" oven and is considering replacing it only two years later?

5. At what purchase price would Brownie's Bakery be indifferent between purchasing the new oven and continuing to use the old oven?

Requirement 3:

Requirement 4:

Requirement 5:

A Data Table Old Oven 27,000 $ 6,200 28,000 $ Original cost Accumulated depreciation Book value Current disposal value Installation cost Annual operating cost Useful life Current age Remaining useful life Terminal disposal value (in 5 years) New Oven 42,000 Not acquired yet Not acquired yet Not acquired yet 2,100 14,000 5 years O years 5 years Not applicable $ $ 20,000 $ 7 years 2 years 5 years S 0$ Requirement 1 and 2. Which of the costs and benefits above are relevant to the decision to replace the oven? What information is irrelevant? Why is it irrelevant? Begin by determining whether each item is relevant or irrelevant for this decision. If an item is irrelevant, select why it is irrelevant. (Make a selection for each item in the Old Oven and New Oven columns. In the "Why Irrelevant" column, only make a selection for irrelevant items. For relevant items, leave the input field blank; do not select a label.) Why Irrelevant Old Oven Relevant New Oven Relevant Sunk cost Original cost Accumulated depreciation Book value Current disposal value Installation cost Annual operating cost Terminal disposal value Don't differ Irrelevant Relevant Not applicable Irrelevant Relevant Don't differ