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Harry Styles currently owns a Bagel store. He thinks that the wood oven should be replaced by a modern gas oven, which would reduce costs

Harry Styles currently owns a Bagel store. He thinks that the wood oven should be replaced by a modern gas oven, which would reduce costs by $36,500 per year. He only plans to be in business for another two years. The current oven was purchased thirty years ago for $20,000. It could be sold today for $5,000 and will be worth $3,000 in two years. A new oven costs $105,000 today and could be sold for $65000 in two years. Ovens are in class 8 with a 20% depreciation rate. Assume that investment cash flows occur immediately, and that sales and production costs occur at the end of the year. The forecasted incremental operating cash flows will be $27,225 in Year 1 and $30,025 in Year 2. The cost of capital is 9% and the tax rate is 35%.

Question: What is the NPV for the proposed acquisition?

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