Question

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ummy Tue: 24.54:16 Question 31 1 point Number Help Fairfax Pizza is considering buying a new oven. The new oven would be purchased today for 19,800 dollars. It would be depreciated straight-line to 1,600 dollars over 2 years. In 2 years, the oven would be sold for an after-tax cash flow of 2,300 dollars. Without the new oven, costs are expected to be 12,600 dollars in 1 year and 16,500 in 2 years. With the new oven, costs are expected to be -1,400 dollars in 1 year and 11,300 in 2 years. If the tax rate is 50 percent and the cost of capital is 10.81 percent, what is the net present value of the new oven project? Number

Answer 1

Net present value of the new oven project: - $ 6,734

Period	Incremental Operating Cash Flows	Incremental Depreciation	Operating Cash Flows After Taxes	After Tax Salavage Value	Total After Tax Tax Cash Inflows	PV factor at 10.81 %	Present Values
1	$ 1,400	$ 9,100	$ 5,950	0	$ 5,950	0.90245	$5,369.58
2	5,200	9,100	7,150	2,300	9,450	0.81441	7,696.17
Present value of cash inflows							$13,065.75
Initial Investment							(19,800)
Net Present Value							- $6,734.25