FleshSliceLonsdale 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:

ExistingNew Oven

Original cost$70,000$65,000

Accumulated depreciation$3,500-

Current salvage value$57,000-

Remaining life5 years5 years

Annual operating expenses$11,000$9,500

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?