Question
Fairfax Pizza is considering buying a new oven. The new oven would be purchased today for 18,600 dollars. It would be depreciated straight-line to 2,000
Fairfax Pizza is considering buying a new oven. The new oven would be purchased today for 18,600 dollars. It would be depreciated straight-line to 2,000 dollars over 2 years. In 2 years, the oven would be sold for an after-tax cash flow of 2,900 dollars. Without the new oven, costs are expected to be 12,600 dollars in 1 year and 17,700 in 2 years. With the new oven, costs are expected to be 400 dollars in 1 year and 14,000 in 2 years. If the tax rate is 50 percent and the cost of capital is 10.74 percent, what is the net present value of the new oven project?
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