Question
Fairfax Pizza is considering buying a new oven. The new oven would be purchased today for 17,600 dollars. It would be depreciated straight-line to 1,200
Fairfax Pizza is considering buying a new oven. The new oven would be purchased today for 17,600 dollars. It would be depreciated straight-line to 1,200 dollars over 2 years. In 2 years, the oven would be sold for an after-tax cash flow of 1,700 dollars. Without the new oven, costs are expected to be 11,700 dollars in 1 year and 15,200 in 2 years. With the new oven, costs are expected to be -500 dollars in 1 year and 9,300 in 2 years. If the tax rate is 50 percent and the cost of capital is 11.22 percent, what is the net present value of the new oven project?
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