Dhahran Pizza Branch is considering replacement of its pizza oven with new, more energy-efficient model although will has a shorter life. The old oven had been purchased 2 years ago. Dhahran Pizza estimates that either oven has a remaining useful life of 3 years. Saad Al-Ghamdi, the Chief Financial Officer at the Dhahran Pizza Regional Office is less happy with the whole idea of the proposal to replace the current oven: How can we go for this capital investment at a time Covid-19 is impacting significantly on the market and our customers. Dhahran branch manager is also resisting the proposal of purchasing the new oven. The branch manager annual performance evaluation is heavily based on the branch operating income. The management accountant prepares the following data for the existing (old) oven and the replacement (new oven):

	Old Oven	New Oven
Original cost	$ 400,000	$140,000
Useful life	5 years	3 years
Current age	2 years	0 years
Remaining useful life	3 years	3 years
Accumulated depreciation	$160,000	Not acquired yet
Current book value	$240,000	Not acquired yet
Current disposal value (in cash)	$105,000	Not acquired yet
Terminal disposal value (in cash 3 years from now)	$ 0	$0
Annual cash operating costs (labor, insurance, energy, maintenance, repairs, etc.)	$50,000	$20,000
Annual revenues	$1,200,000	$1,200,000
Annual non-oven related cash operating costs	$880,000	$880,000

Required:

1. Which of the costs and benefits above are relevant to the decision to replace the oven (2 points
2. Which information is irrelevant? Why is it irrelevant? (3 points)
3. Prepare an income statement (a traditional income statement) presenting the revenues, operating costs and operating incomes under the two proposals. (6 points)
4. Why might the branch manager be reluctant to purchase the new oven? (2 points)
5. Should Dhahran Pizza purchase the new oven? Show your calculations and provide support for your answer.
6. What other factors should Dhahran Pizza consider when making its decision?