Can you check my answers for 2a and 2b
Situation 2 Current Designs is always working to identify ways to increase efficiency while becoming more environmentally conscious. During a recent brainstorming session, one employee suggested to Diane Buswell, controller, that the company should consider replacing the current rotomold oven as a way to realize savings from reduced energy consumption. The oven operates on natural gas, using 30,600 therms of natural gas for an entire year. A new, energy-efficient rotomold oven would operate on 27,000 therms of natural gas for an entire year. After seeking out price quotes from a few suppliers, Diane determined that it would cost approximately $450,000 to purchase a new, energy-efficient rotomold oven. She determines that the expected useful life of the new oven would be 8 years, and it would have no salvage value at the end of its useful life. Current Designs would be able to sell the current oven for $18,000 Instructions (a) Prepare an incremental analysis to determine if Current Designs should purchase the new rotomold oven, assuming that the average price for natural gas over the next 8 years will be $0.78 per therm. (b) Diane is concerned that natural gas prices might increase at a faster rate over the next 8 years. If the company projects that the average natural gas price of the next 8 years could be as high as $1.02 per therm, discuss how that might change your conclusion in (a). Situation 2 (a) Prepare an incremental analysis to determine if Current Designs should purchase the new rotomold oven, assuming that the average price for natural gas over the next 8 years will be $0.78 per therm. Replace Oven Retain Oven $190,944.00 $0.00 $16.848.00 Net Income Increase (Decrease) $174,096.00 ($56,250.00) $18,000.00 Variable mfg. costs New oven costs Proceed from scrapping old oven Total $56,250.00 $0.00 ($18,000.00) $190 944.00 $55,098.00 $135,846.00 Based solely on financial considerations, Current Designs should indicate by placing an "X"in the appropriate cell below) Retain Replace 8 Points Situation 2 (b) Diane is concerned that natural gas prices might increase at a faster rate over the next 8 years. If the company projects that the average natural gas price of the next 8 years could be as high as $1.02 per therm, discuss how that might change your conclusion in (a). Retain Oven $249,696.00 Replace Oven $220,320.00 $56,250.00 Net Income Increase (Decrease) $29,376.00 ($56,250.00) $18,000.00 Variable mfg. costs New oven costs Proceed from scrapping old oven Total $0.00 $0.00 ($18,000.00) $249,696.00 $258,570.00 ($8,874.00) Based solely on financial considerations, Current Designs should indicate by placing an "X"in the appropriate cell below) Retain Replace 8 Points
