Dobies Bagel Corporation is considering buying a new oven to expand its bagel operations. It estimates that the cost of the oven will be $10,000, and there will be $200 in shipping and installation charges. The oven falls under the 3-year MACRS class, and Dobie estimates that it will sell the oven at the end of the third year for an estimated salvage value of $1,500. The expected earnings before depreciation and taxes are $6,000 per year. Dobies marginal tax rate is 34%. The additional business is expected to increase inventory by $800 and accounts payable by $300. Assume that the firm begins using the new ovens, January 1, 2014, and sells the ovens, December 31, 2016.

What is the change in net working capital at the outset of the project?

What is the initial investment cash flow?

What are the depreciation deductions for each year?

What is the total shutdown cash flow assuming that the firms current assets and liabilities will return to their previous level?

Provide a complete incremental cash flow statement in the space below.

If Dobies cost of capital is 12%, should they purchase the ovens? Why or why not?