FleshSlice Lonsdale Inc. replaced the convection oven just six months ago. Today, Commercial Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. The company is considering the purchase of this faster, lower-operating cost

convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below:

Existing New Oven

Original cost $70,000 $67,000

Accumulated depreciation $3,500 -

Current salvage value $55,000 -

Remaining life 5 years 5 years

Annual operating expenses $10,000 $8,500

Disposal value in 5 years $0 $0

Required:

a. What costs are sunk?

b. What costs are relevant?

c. What are the net cash flows over the next 5 years assuming the bakery purchases the new convection oven?

d. What other items should the company consider when making this decision?

mm Inc. replaced the convection oven just six months ago. Today, Commercial Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. The company is considering the purchase of this faster, lower-operating cost convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below: Existing New Oven Original cost $70, 000 $67,000 Accumulated depreciation $3,500 7 Current salvage value $55,000 7 Remaining life 5 years 5 years Annual operating expenses $10,000 $8,500 Disposal value in 5 years $0 $0 Required: a. What costs are sunk? b. What costs are relevant? c. What are the net cash ows over the next 5 years assuming the bakery purchases the new convection oven? (:1. What other items should the company consider when making this decision