Betty's Bakery Needs to Purchase a New Oven Costing $8,000

question 151

Essay

Betty's Bakery needs to purchase a new oven costing $8,000 to replace her old oven that cannot be repaired.The new oven has several new features and is expected to have a useful life of 12 years.Betty does not expect the oven will have any salvage value at the end of its life.
Required:
a.If Betty's required rate of return is 8%, what level of annual cash savings must the oven generate to be considered an acceptable investment under the net present value method?
b.If Betty decides the cash savings will not be sufficient to justify the cost of the new oven, list two alternatives she might consider.

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Definitions:

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